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Consumer Debt

In some jurisdictions, insolvency law provides a special procedure for consumers mostly including personal debt discharge. Relief of debt can be found throughout history in various cultures, religions, and policies, and is firmly established in societies. Nowadays, it enables consumers to have to pay only part of their debts and be relieved from the residual ones —otherwise, satisfying all creditors would regularly imply payments for the rest of their lives.

With consumer debt relief proceedings insolvency law not only defines the limits of personal debt, but also exemplify how societies deal with financial failure of individuals in general. Provisions and underlying values address problems that go beyond a purely economic perspective. Plural values and conflicting motives can be found in varying forms and with different emphases in the designs of consumer insolvency legislations around the world.

Insolvency continues to be associated with distrust and stigma, especially towards consumers, dating back in history (e.g. Roman law) when defaulting personal debtors were criminalized and draconically punished (e.g. enslaved or even executed). Even if draconic punishment was abandoned, a negative perception of insolvent debtors continues to this day. This remaining stigma indicates a focus of some insolvency laws on debtors’ responsibility overlooking structural problems along with the role of creditors and increasingly deregulated credit markets. A competing paradigm is the debtor’s economic reintegration by means of a ‘fresh start’ in the interest of markets and the society at large. The project looks for further goals in consumer insolvency laws around the world.

Apart from different goals, insolvency laws differ it the conditions of discharge as much as in measures which are taken to rehabilitate debtors. Two important factors are behavioral requirements consumers must fulfill to be relieved from their debts and the existence and duration of a waiting period. Besides certain payments or sometimes liquidation of the debtor’s property, the inability to entirely pay off debts seems often to be compensated by additional time requirements and certain behavioral provisions, partly restrictions, affecting various areas of the debtors’ life. The project compares these factors in consumer insolvency laws around the world.

Such debt regulation proceedings for consumers may imply distinct statutory guidelines with hardly any scope of discretion that focus on the consumers’ duties during the proceedings, such as payments for a certain time under certain behavioral prerequisites. In other cases, similar to corporations and states, creditors and consumers negotiate the terms under which debtors are relieved from debt. Unlike corporations and similar to states, consumers cannot be liquidated. However, their assets partially can. In any event, initially agreed upon obligations and therefore also debts become malleable under insolvency law. This holds true for consumers as well as corporations and states. The project compares structural differences in procedural design between creditors and debtors in the field of consumer insolvency with debt deliberation in corporate and sovereign debts.

By considering debt not merely as an economic medium, but integrating political, cultural, and ecological perspectives, we want to outline a more sustainable conception of debt. The aim is to devise a general framework for how sustainability can be defined in the field of consumer debts based on our comparative analyses of consumer insolvency laws. In that sense, reflexive debt regulation in the realm of consumers could be one instrument to counteract the ongoing global surge in inequality.

Funded by the European Union (ERC, RESOLVENCY, 950427). Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Research Council Executive Agency. Neither the European Union nor the granting authority can be held responsible for them.