Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns

Rajashri Chakrabarti; Nathaniel Pattison

doi:10.1093/rfs/hhz039

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Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns

Rajashri Chakrabarti¹; Nathaniel Pattison²

¹ Federal Reserve Bank of New York · ² Southern Methodist University

Review of Financial Studies 2019

Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform, as Chapter 13 bankruptcy filers can no longer “cramdown” the amount owed on recent auto loans. We estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. Exploiting historical variation in states’ usage of Chapter 13 bankruptcy, we find strong evidence that eliminating cramdowns decreased interest rates and some evidence that loan sizes increased among subprime borrowers. The decline in interest rates is persistent and is robust to a battery of sensitivity checks. We rule out other reform changes as possible causes. Received September 29, 2016; editorial decision January 15, 2019 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

DOI: 10.1093/rfs/hhz039
Volume: 32 (12)
Pages: 4734-4766
Language: en
Export: BibTeX
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