Available at: https://ssrn.com/abstract=5367017
Abstract:
This paper tests how people’s moral values influence their views of debt contracts. We ask participants to make decisions about debt contracts in different hypothetical situations (vignettes). We separately measure their moral values using the Moral Foundations Questionnaire (Graham et al., 2009). We have three main sets of findings. First, differences in moral values strongly explain the cross-section of participants’ debt decisions. Participants with more conservative values show more support for credit score-based loan pricing, stricter forms of collateral, and tougher bankruptcy resolution. Second, when we randomly change the economic costs and benefits of debt within our vignettes, we find that participants change their answers in the direction predicted by economic theory. Third, participants’ beliefs of the functioning of the credit market strongly correlate with their moral values. Participants with conservative values are more likely to believe that strict enforcement and risk-based loan pricing provide incentives and are economically efficient. More liberal participants believe that insurance against unlucky shocks are important. Consistent with moral values being distinct from Bayesian beliefs, financial literacy does not attenuate moral values in shaping beliefs about what is economically efficient.
Commentary:
While the Bankruptcy Code is a federal (and ostensibly) neutral law, the emotional and moral terrain of debt is anything but. In their illuminating paper, Attitudes to Debt: The Role of Moral Values, Paine, Schoar, and Thesmar provide empirical backing to what many consumer bankruptcy attorneys witness daily: that a client’s willingness—or refusal—to file for bankruptcy is not purely a matter of finances or legal strategy, but a reflection of their deep-seated moral values.
Layered atop this moral framework is another force—more corrosive and more hidden: shame. And as the recent study by Gladstone et al., Financial Shame Spirals: How Shame Intensifies Financial Hardship, highlights, shame is not just an effect of financial distress—it is a cause and accelerator of it. Together, these studies provide a powerful framework for attorneys seeking to guide clients through the emotional gauntlet of insolvency and also to engage meaningfully with public policy.
Key Findings: Morals and Markets
Paine et al. surveyed over 1,700 participants and found that:
- Moral values predict debt attitudes more strongly than political affiliation or financial literacy.
- Conservatives (respondents scoring higher on authority, sanctity, and loyalty) were more punitive toward defaulting borrowers.
- Liberals (respondents scoring higher on fairness and care) supported more lenient debt relief.
- Efficiency arguments (e.g., higher credit costs from leniency) were less persuasive than personal stories.
- Responses shifted more significantly when a debtor’s narrative was introduced.
- Moral values shaped beliefs about how the credit system works, with conservatives viewing borrowers as responsible agents and liberals attributing financial distress more to systemic factors or bad luck.
What emerges is a tale of *two moral economies*: one that values accountability through consequence and one that favors compassion and second chances. And both can be hostile to bankruptcy—just for different reasons.
The Shame Spiral
But even when a client intellectually understands the mechanics and morality of bankruptcy, they may still resist filing because of shame. Gladstone et al. demonstrate that:
- Shame creates a downward cycle—individuals who feel ashamed of their financial problems are less likely to seek help and more likely to engage in harmful coping strategies (e.g., taking out payday loans, ignoring bills, withdrawing socially).
- Unlike guilt, shame is about the self, not the act.
- A guilty client may say, “I made mistakes with money.”
- A shamed client believes, “I am bad with money.”
- This shame inhibits action, especially filing bankruptcy, which many clients see as a public admission of failure.
Thus, even clients whose moral intuitions align with forgiveness may remain trapped in shame. This can make bankruptcy seem less like a legal remedy and more like a moral confession—or worse, a scarlet letter.
How Attorneys Can Use These Insights
- Reframing the Narrative: Attorneys must help clients reframe bankruptcy as a tool for restoration, not a mark of disgrace. For clients with conservative leanings, this might mean emphasizing how bankruptcy allows them to return to being providers, taxpayers, and participants in the community. For liberal clients, focusing on systemic inequities and the justice of a fresh start may be more effective. Both can be reminded: bankruptcy is not about escaping obligation—it is about confronting it *honestly and effectively*. It is the opposite of hiding.
- Recognizing and Interrupting Shame Spirals: Front-line staff and attorneys should be trained to listen for signs of shame: missed appointments, reluctance to provide documents, emotional withdrawal. These are not just logistical obstacles; they are symptoms of a deeper emotional burden. Normalize bankruptcy in your materials and in your voice. Tell clients how many others have filed—and gone on to thrive.
- Crafting Client-Facing Materials: Website FAQs, intake scripts, and mailers should be sensitive to shame. Avoid language like “are you failing to pay your debts?” in favor of “are debt payments making it harder to care for your family?” Speak to the outcomes, not the blame.
Political and Legislative Implications: For those engaging with policymakers and legislators, these findings offer a roadmap to shift the conversation around bankruptcy law:
- Moral arguments work: For conservatives, frame reforms as reinforcing personal responsibility *through structured second chances*. For liberals, emphasize the dignity of those burdened by systemic financial hardship.
- Stories matter more than spreadsheets: Humanize the policy debate with narratives—not just statistics—especially about veterans, elderly debtors, or families with medical bankruptcies.
- Combat financial shame through visibility: Encourage media coverage and public statements that present bankruptcy not as failure, but as financial recovery.
Organizations like NACBA can use these findings to better shape amicus briefs, advocacy campaigns, and outreach to both sides of the political aisle.
Conclusion: Consumer bankruptcy attorneys have long operated not just as legal advisors, but as therapists, pastors, and sometimes confessors. These two studies—Attitudes to Debt and Financial Shame Spirals—offer a framework to understand why clients come to us burdened not only by debt, but by moral conflict and emotional injury.
By navigating these internal landscapes with empathy and strategy, we can help our clients not only discharge debt but reclaim dignity. And by bringing this understanding to legislators and the public, we can move toward a bankruptcy system—and a broader financial culture—that is not just legally sound, but morally wise.
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