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Daily Real Estate News  |  May 18, 2010  |   Bankruptcy Reform Spurs Loan Defaults
A working paper from Wenli Li and others at the Federal Reserve Bank of Philadelphia argues that an unintended consequence of the 2005 tightening of the federal bankruptcy laws is a rise in mortgage defaults.

The study concludes that the bankruptcy changes led to an additional 200,000 mortgage defaults per year.

The legislation raised the cost of filing for bankruptcy and reduced the amount of debt that it wipes out. The authors of the paper suggest lowering the cost of filing to pre-2005 levels.

Source: The Wall Street Journal, James R. Hagerty (05/17/2010)

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