The Effect of Principal Reduction on Household Distress: Evidence from Mortgage Cramdown*

• 成果类型: Article
• 署名作者: Cespedes, Jacelly; Parra, Carlos; Sialm, Clemens
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities; Pontificia Universidad Catolica de Chile; University of Texas System; University of Texas Austin; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454; 1465-7368
• DOI: 10.1093/rfs/hhaf104
• 发表日期: 2026-02
• 页码: 518-561
• 关键词: D14; G21; G51; K35; disability insurance receipt; consumer bankruptcy; negative equity; Debt relief; foreclosure; default; outcomes; HOME; identification; liquidity

摘要

Mortgage cramdown enabled bankruptcy judges to discharge the underwater portion of a mortgage in a chapter 13 bankruptcy until the Supreme Court disallowed this practice in 1993. We investigate the impact of mortgage cramdown on household distress exploiting the random assignment of cases to judges. The impact of bankruptcy protection on foreclosures is reduced by more than half after the Supreme Court disallowed cramdown. Our results suggest that large principal reductions considerably decrease homeowners' distress by reducing debt overhang.