Professor Mark Scarberry has put forth a formidable critique of my empirical study of mortgage market sensitivity to bankruptcy modification risk. As this response shows, however, his critique does not hold up under scrutiny. Professor Scarberry argues that my study design is invalid because, as he reads the current state of the law, cramdown is virtually impossible. Therefore, he contends, we should not expect markets to exhibit sensitivity to cramdown risk, so no policy conclusions can be derived from my finding of market insensitivity. Regrettably, Professor Scarberry overreads the state of the law. The law is in fact unsettled, and that is all that is necessary to uphold the validity of my study’s design because the market can be expected to price for uncertainty about the law, and the absence of such a premium is significant. This response article also challenges Professor Scarberry’s contention that Chapter 13 relief should be limited lest it engender “resentment” of debtors. The article questions whether prevention of resentment even provides a sound basis for limiting bankruptcy relief, much less when relief would further an important macroeconomic goal of housing market stabilization. More broadly, the article takes issues with claims about the sanctity of secured credit. Debates about the efficiency of secured credit have all played out in the business context. In the consumer context, however, the inefficiency is manifest. Treating secured credit as inviolable would take us back to the unhappy future of Chapter XIII with higher costs for unsecured credit and the abusive consumer finance world of Williams v. Walker-Thomas.

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