The debtor-creditor relationship has always been intertwined with notions of morality. Failing to pay one’s financial obligations has traditionally been met with social opprobrium, internal shame, and external stigma. This dynamic did not change with the advent of American bankruptcy law. Indeed, for much of the twentieth-century, scholars have studied and debated whether the stigma associated with filing for bankruptcy has declined over the years, particularly in the 1980s and 1990s when the number of consumer bankruptcy filings increased dramatically. Existing studies suggest that the stigma regarding personal bankruptcy has declined in the latter portion of the twentieth-century.
Using a data set previously untapped by bankruptcy and social science scholars, this study explores the trend of bankruptcy stigma for approximately four decades, from the advent of the Bankruptcy Code in 1978 to the present day. Contrary to both existing studies on this issue and the arguments set forth by some commentators, the results of the present study suggest that the stigma surrounding personal bankruptcy has actually increased over time, rather than decreased, and this trend paradoxically tracks the number of consumer bankruptcy filings each year.
The results of this study should not only serve to re-invigorate the debate regarding Americans’ views about the bankruptcy process from a social perspective, but it also offers evidence for policymakers and Congress should they choose to re-examine the 2005 amendments to the Bankruptcy Code occasioned by the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). If, indeed, the results of this study are accurate insofar as bankruptcy stigma has increased from 1977 to 2016, then our nation’s bankruptcy laws currently rest upon an entirely faulty premise.
The author’s concluding explanation for the increasing stigma in filing bankruptcy is the feeling that as:
Americans adhere to the concept of economic meritocracy, then those who find themselves clinging to the lower economic rungs in society deserve their fate. It is consequently understandable that when financial calamity strikes an individual or family and debt service simply becomes no longer manageable, attribution of the economic plight is associated with personal failings and limitations. Becoming mired in debt and needing to file for bankruptcy as a result offends Americans’ traditional values of hard work, personal responsibility and morality, thus leading society to stigmatize those who break with these social norms.
This perspective could also explain to some degree the differing rates of Chapter 7 and Chapter 13 filings, both regionally and based on race, that has been noted elsewhere.
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