The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAR) was enacted, in part, to curb consumer bankruptcy filing abuse by introducing requisites for debtors seeking to eliminate certain unsecured debts. Prior to BAR, overly indebted borrowers could file bankruptcy to discharge unsecured debts, thereby enabling them to retain more income to pay secured debts, such as home mortgages. The reform eliminated this option for better-off filers through a “means test” and other requirements. In this report, authors Donald P. Morgan, Benjamin Iverson and Matthew Botsch consider whether the fact that it was harder for homeowners to default on unsecured debts after BAR took effect contributed to higher delinquencies and foreclosures on their home loans.
Donald P. Morgan is an assistant vice president at the Federal Reserve Bank of New York; Benjamin Iverson is a graduate student at Harvard University; Matthew Botsch is a graduate student at the University of California at Berkeley.