Overindebtedness and Overlegalization: Consumer Bankruptcy as a Field for Alternative Dispute Resolution

Abstract

In the advisory report to the European Commission (Huls et al., 1994), the conclusion was reached that the optimal European solution for overindebtedness of consumers is a combination of legal change and a strengthening of the work of social debt counsellors. It was argued that the two spheres, the legal and the social, should be linked in order to create a constructive coalition. Europe has learned from the USA how to introduce the concept "discharge of debts" into their legislation (Huls, 1992). The USA may learn from Europe how debt coun- sellors can play a more vital part in tackling the debt problem of consumers. This paper explores the possibilities for expanding the domain of non-legal actors in this field by looking at legal aid discussions in general, and more specifically at the new Alternative Dispute Resolution (ADR) trend that is developing both in the USA and Europe. In the first section of the paper, the importance of an adequate definition of the problem is stressed. The following section summarizes the model proposed in Huls et al. (1994). It is followed by a plea for professional and independent debt counselling, a prerequisite for dejuridification of the debt problem, and for a coupling of debt problems to legal aid discussions. This leads to the conclusion that a strong case can be made for debt counselling as a form of ADR. WHICH SOLUTION FOR WHOSE PROBLEM? The rise in overindebtedness has coincided with the rise in consumer credit. In Europe today, overindebtedness is found more frequently than a number of years ago. For various reasons, many consumers are not able to pay back their debts. Such financial entrapment is not restricted to specific social or economic groups, but can happen to almost anyone. Four different groups of overcommitted debtors can be distin- guished. The first group runs into temporary misfortune (i.e., unemployment, divorce, illness, and so on). A second group consists of people who unconsciously become overcommitted. They make use of widely available forms of credit, without realizing that they might not be able to repay in the future. The third group are the "poor" who have to take credit in order to attain a reasonable standard of