Rules and Norms of Consumer Insolvency and Debt Relief: A Comparison and Classification of Personal Bankruptcy Systems in 15 Economically Advanced Countries

Abstract

In the past decades, the growth of consumer credit has led to increased debt problems of private households, and many economically advanced countries have responded to this new social risk of consumer over-indebtedness by adopting consumer bankruptcy laws that enable insolvent individuals a financial ‘fresh start’ via discharge of debts. The study describes, compares and classifies the legal rules and underlying norms of consumer bankruptcy in fifteen advanced economies and makes three contributions to comparative politics, sociology and law: First, it develops conceptualizations of consumer bankruptcy and its actors, aims and components that are precise, theoretically informed and transnationally applicable. Second, it offers a systematic and detailed comparison of consumer bankruptcy regimes from a wide range of legal, economic and social-political traditions, which exhibits similarities and differences regarding the substantive rules of consumer debt relief. Third, the study provides an empirical classification of consumer bankruptcy systems based on a theory-driven framework, a new comparative dataset and hierarchical clustering. This classification identifies a common core of consumer bankruptcy as well as four distinct models of debt relief, which differ in their legal, economic and social-political orientations and their resultant understandings of debtors, creditors, markets, social problems and the public order: (1) a ‘market model’ that offers a quick ‘fresh start’ for insolvent individuals; (2) a ‘restrictions model’ that imposes economic, political and civil restrictions on debtors; (3) a ‘liability model’ that emphasizes the debtor’s responsibility for debt repayment; and (4) a ‘mercy model’ that focuses on the debtor’s deservingness for debt relief. In sum, the study creates solid conceptual and empirical foundations for comparative consumer bankruptcy research and connects the field to political economy, sociology, consumer policy, public policy, social policy and welfare state research.