Seeking Shelter in Personal Insolvency Law: Recession, Eviction, and Bankruptcy's Social Safety Net

Abstract

Many legal systems understand consumer insolvency laws as social insurance, providing relief and a`fresh start' to over-indebted households who fall through gaps in the social safety net. Personal insolvency law in England and Wales in practice functions similarly, but in terms of legal principle and policy is ambivalent ± sometimes emphasizing household debt relief, other times creditor wealth maximization. This article assesses, in the context of novel debt problems brought to prominence by recession and austerity, the extent to which the law has embraced personal insolvency's social insurance function. The discussion is framed particularly by the escalating United Kingdom housing crisis and the case of Places for People v. Sharples concerning consumer bankruptcy's (non)protection of debtors from eviction. The analysis illustrates how tensions between conceptual understandings and personal insolvency law's practical operation undermine the law's ability to fulfil its potential to produce positive policy responses to contemporary socio-economic challenges. 374

The Impact of the COVID-19 Pandemic on Consumer Bankruptcies

“…More specifically, to ensure social distancing, states imposed lockdowns, business closures, expanded unemployment benefits, eviction moratoria, and prohibited the enforcements of garnishments for consumer debt (Erwin, Mucheck, & Brownson, 2021;Mitchell, Bulger, Duber, Greninger, et al, 2020; Washington State Office of the Governor, 2020). Many of these additional protections are not traditionally protected or treated as extenuating circumstances under bankruptcy law (Greene, Patel, & Porter, 2017;Spooner, 2017). For example, in the absence of a pandemic, renters may still be evicted from their residences for non-payment of rent, even if they file for bankruptcy protection.…”

“…Additional unemployment benefits (or extended eligibility for those benefits) may also delay financial insolvency. The U.S. Bankruptcy Code intends to strike a balance between two objectives: maximizing debt collections on behalf of creditors, and maximizing the debt relief of debtors (Spooner, 2017). Clearly, the COVID-19 pandemic is unique in that it created a major, albeit temporary, shift in this balance in a manner that benefits debtors.…”

“…Once insolvent, the primary means to resolve the insolvency is through the consumer bankruptcy process. As a form of social insurance, consumer bankruptcy redistributes wealth from creditors to debtors (Spooner, 2017). Creditors who incur losses from unpaid billings pass on a portion of those losses to society at large through higher prices and/or interest rates, which further slows economic recovery.…”

An Intelligent Advisory System to Support Managerial Decisions for A Social Safety Net

“…SSNPs are a set of services offered by the state, corporate bodies, or public-minded individuals to assist the poor and vulnerable to prevent them from falling further into poverty or disadvantage (Ahmed 2016). Services include unemployment benefits (Das 2016), welfare (Stranz et al 2017), basic healthcare (Oberlin and Pizmony-Levy 2016), conditional cash transfers (Tovar and Urrutia 2017), social investment microcredit (Rahman 2014), food and nutrition security (Porter and Goyal 2016), child protection (Peterman et al 2017), support in case of debt insolvency (Spooner 2017), shelters for the homeless (Bender et al 2018), support for aging populations (Mutchler et al 2018), and widow empowerment programs (Pradhan and Afrin 2015), among others. SSNPs are carefully designed with the aim of empowering the less privileged so that their abilities can be harnessed for socioeconomic growth and development (United Nations 2017).…”

Financing Prosperity by Dealing with Debt

“…action to address the growing risk that rising consumer debt posed to financial stability (Bank of England 2017). Aside from these forms of financial debt, problems have soared over the past decade in relation to essential obligations such as rent arrears and debts owed to central and local government(London Assembly, Economy Committee 2015; National Audit Office 2018;Spooner 2017). The Money and Pensions Service estimates that approximately eight million people in the UK are 'over-indebted' (Money Advice Service 2016).…”