Bankruptcy Exemption Laws and the Market for Mortgages

We investigate the relationship between bankruptcy exemption laws and the availability of credit for first and second mortgages (home equity loans and lines). We follow a bank specific approach as advocated by Stengel and Glennon (1999) to test this relationship, using application data from multiple financial institutions. The data sets are unique and include a number of financial and demographic variables that are lacking in other studies on this topic. We show that after controlling for all financial and economic variables, the availability of credit does not fall for first and second mortgages originated in states with higher bankruptcy exemption levels.