The Persistence of Bankruptcy Stigma

Abstract

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.