Available at: https://ssrn.com/abstract=5344990
Executive Summary:
This paper examines the crucial role of data collection in personal insolvency regimes, highlighting its importance for effective policy making, legislative reforms, and economic analysis. As personal insolvency laws have evolved to address the complexities of modern credit-based economies, the need for comprehensive, systematic data collection has become increasingly apparent.
Personal insolvency laws offer several critical benefits across different stakeholders. For creditors, these laws maximize value and preserve inter-creditor equity through collective action processes. Debtors benefit from the relief provided and the opportunity for a "fresh start" or "second chance" through debt discharge. The broader economy and society gain from limiting the negative systemic effects of unregulated distressed debt, encouraging responsible lending practices, and fostering entrepreneurship.
Data collection serves two primary functions in personal insolvency: measuring the effectiveness and efficiency of the personal insolvency regime and gathering information for analysis and development of social policies. Robust data collection allows for informed decision making and evidence-based policy reforms. It enables the identification of trends and patterns in personal insolvency, ensures fairness and equity in the application of insolvency laws, facilitates research and analysis of consumer behavior and economic trends, and enables international comparisons and benchmarking.
When designing a data collection system, several key considerations must be taken into account. These include defining clear objectives aligned with the goals of the personal insolvency regime, ensuring data privacy and protection of sensitive personal information, standardizing data elements and formats for consistency and ease of analysis, minimizing the burden on respondents while collecting necessary information, and integrating data collection into existing insolvency processes and forms.
Effective implementation of a data collection system involves assigning responsibility to a relevant authority, such as a national statistics agency, insolvency regulator, or the courts. It requires designing user-friendly data collection forms with clear instructions, conducting pilot tests to identify and address potential challenges, implementing robust data security measures, providing training for staff involved in data collection and analysis, and regularly reviewing and updating the data collection process.
The paper recommends collecting data on various aspects of the personal insolvency system. This includes system efficiency metrics such as the number of applications, rejection rates, reasons for rejection, processing times, and costs. Procedural outcomes, including discharge rates, reasons for denial of discharge, and plan completion rates, should also be tracked. Debtor demographics like age, gender, education, occupation, and geographic location provide valuable insights. Financial information, including types of creditors, debt composition, asset values, and income levels, is crucial for understanding the nature of personal insolvency cases. Additionally, institutional performance metrics for courts and insolvency practitioners should be collected to assess the efficiency of the system's administration.
In conclusion, implementing comprehensive data collection systems for personal insolvency is essential for assessing the effectiveness of personal insolvency laws in achieving their objectives. These systems provide valuable insights into broader economic and social trends, enable evidence-based policy decisions and legislative reforms, and enhance transparency and accountability in the personal insolvency system. While data collection requires investment in resources and infrastructure, the cost of not developing these systems is far higher. Countries should prioritize the assessment and improvement of their personal insolvency data collection mechanisms to ensure their insolvency regimes remain responsive, effective, and fair in the face of evolving economic challenges. By doing so, they can create a solid foundation for understanding and addressing the complex phenomenon of personal insolvency, ultimately contributing to more robust and equitable financial systems.
Commentary:
In this IMF working paper, José Garrido, Jason Kilborn, and Anjum Rosha highlight what U.S. consumer bankruptcy attorneys have long sensed but lacked the infrastructure to definitively prove: the powerful insights, legislative ammunition, and litigation support that comprehensive demographic and procedural data could provide if the U.S. bankruptcy system were equipped with a well-structured data collection framework.
Advantages
- Demographic Visibility for Policy Reform: As the authors note, “legislating in the dark is a disadvantage” in the age of big data. A data system that meaningfully tracks racial, gender, geographic, and income differences could reveal systemic inequities—such as those highlighted by Professors Argyle, Foohey, Lawless, and Thorne—but without relying solely on expensive academic studies and statistical inferences.
Disadvantages and Limitations
- Privacy and Stigma Risks: The paper rightly acknowledges that personal insolvency data implicates deep privacy concerns. In the U.S., where public PACER access already makes debtors vulnerable to reputational harm, enhanced data collection must be carefully anonymized and aggregated—or risk reinforcing creditor discrimination and social stigma.
- Potential Misuse by Creditors: While designed to help debtors, such a system could be weaponized by creditors (or credit bureaus) to deny lending to individuals from zip codes with higher discharge rates or average plan failures. Attorneys should remain wary of data systems that operate without strong debtor-side advocacy.
- Administrative and Technological Burden: Implementing this kind of data collection—especially across 94 bankruptcy districts with wildly different practices—would require significant investment, training, and standardization. Without Congressional action or substantial funding, such reforms could become another unfunded mandate borne by already-stretched bankruptcy clerks and practitioners.
A Caution and a Call
To paraphrase Professor Kilborn’s prior work: we cannot fix what we refuse to measure. Just as North Carolina has learned from its (often under-analyzed) high volume of pro se filings and rural Chapter 13 cases, the U.S. as a whole needs a robust data regime that tracks not just filings and discharges, but who is filing—and who is not.
Consumer attorneys should push for a demographic overlay to bankruptcy statistics—something more akin to the data available in student loans, healthcare, and criminal justice. Not to pathologize debtors, but to understand them—and build a better, fairer system in response.
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