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Who invests in home equity to exempt wealth from bankruptcy?

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  • Corradin, Stefano
  • Gropp, Reint E.
  • Huizinga, Harry
  • Laeven, Luc

Abstract

Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data for the period 1996 to 2006, we find that household demand for real estate is relatively high if the marginal investment in home equity is covered by the exemption. The home equity bias is more pronounced for younger households that face more financial uncertainty and therefore have a higher ex ante probability of bankruptcy

Suggested Citation

  • Corradin, Stefano & Gropp, Reint E. & Huizinga, Harry & Laeven, Luc, 2013. "Who invests in home equity to exempt wealth from bankruptcy?," SAFE Working Paper Series 21, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:21
    DOI: 10.2139/ssrn.2268926
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    Cited by:

    1. Nadia Greenhalgh-Stanley & Shawn Rohlin, 2013. "How Does Bankruptcy Law Impact the Elderly's Business and Housing Decisions?," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 417-451.
    2. Eric Helland & Anupam B. Jena & Dan P. Ly & Seth A. Seabury, 2016. "Self-insuring against Liability Risk: Evidence from Physician Home Values in States with Unlimited Homestead Exemptions," NBER Working Papers 22031, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Homestead exemptions; Personal bankruptcy; Portfolio allocation; Home ownership;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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