A cross-tabulation did not reveal a statistically significant difference between the representation ofrepeat foreclosure filers and first-time filers in the three categories of affordability. Pearson chisquare=
2.654. p=.265 (on file with Katherine Porter).
83 See Mortgage Study (on file with Katherine Porter).
84 Carroll & Li, supra note 75, at 15, tbl. 3 (finding that the ratio of monthly mortgage payment to
income had a statistically significant effect in a regression model that attempted to measure whether
bankruptcy cases ended in home loss from foreclosure).
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Figure 3: Percentage of Bankruptcy Debtors by Decile of Housing Affordability
Three observations can be made based on this analysis of affordability. First, for the debtors at the lowest end of the affordability spectrum—those spending less than 10% of income on housing—it is unlikely the primary purpose of seeking bankruptcy protection was preventing foreclosure. Of these debtors, 83% had no mortgage, and the remainder had incomes far in excess of their housing costs.85 These families may have chosen chapter 13 repayment bankruptcy instead of chapter 7 liquidation to stop foreclosure in part because they wanted to retain their homes, but
imminent foreclosure or mortgage arrearage was unlikely the driving factor for their loan modification filings. For the one in ten debtors who spends less than 20% of household income on housing costs, factors other than housing affordability seem likely to be the principal determinants of success in addressing financial problems in bankruptcy.
Second, at the other end of the affordability spectrum, some bankrupt families are spending 90 to 100% of their incomes on housing.86 In this top decile, 72% of families had housing costs that exceeded their total incomes. At the time of their foreclosure filings, these families did not have enough dollars to pay their mortgages and other housing costs, much less purchase subsistence goods such as food, medicine, and clothing. Homeowners filing these bankruptcy cases seem doomed to fail at retaining their homes through a bankruptcy repayment plan. Despite circumstances that appear to make a repayment plan patently impossible, there are several possible explanations for these debtors’ decisions to file chapter 13 bankruptcy.87 Some
debtors may be expecting a significant increase in current income immediately after their
85 Mortgage Study data (on file with Katherine Porter.)
86 Additional error checking was performed for all records reporting a housing cost to income ratio above 75% to ensure accuracy.
87 An additional reason could be a debtor’s stop foreclosure attorney steering the debtor into chapter 13 rather than chapter 7, even though the family has no plausible chance of being able to use chapter 13’s specialized home-saving provisions or of being able to confirm a repayment plan. Attorneys may prefer
chapter 13 because such cases usually garner higher attorney’s fees than chapter 7 and such fees may be paid over time, permitting some families to enter foreclosure that could not afford to pay the lump-sum filing fee required to enter chapter 7 bankruptcy.
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