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Auto credit and the 2005 bankruptcy reform: the impact of eliminating cramdowns
Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform. Cars depreciate quickly, so borrowers often owe more than their car is worth. Prior to the Reform, these borrowers could reduce the principal on their auto loan to the market value of the car through a ?cramdown? in Chapter 13 bankruptcy. The Reform prohibited cramdowns during the first two and a half years of an auto loan. This paper is the first to estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. The authors use a novel empirical strategy that relies on the fact ...