It used to be that consumers forced into bankruptcy were ashamed of themselves. Think about how embarassed you were the last time your credit card was rejected while waiting in line, and multiply that by a lot. That’s how people used to think about bankruptcy. If this is true, according to Credit Slips, Americans are not alone in their shamelessness.
For example, one would think that Japan might represent a highly traditional, honor-focused society where stigma would powerfully inhibit sloughing off responsibility. Yet, from 1998 to 2003, the number of filings for personal bankruptcy in Japan (roughly equivalent to U.S. Chapter 7) rose from just over 100,000 to just over 240,000. The filing rate thus grew from just over 0.8 filing per 1000 residents in Japan to 1.90 filings per 1000 (falling back to about 1.45 per 1000 by 2005). This is far behind the 5+ “non-business†filings per 1000 residents in the U.S. at the height of the pre-BAPCPA era, but to see the 2.4 X growth rate in Japanese filings in the six years from 1998 to 2004, one must look more than twice as far back in time in the United States (1990 to 2003, from 660,796 to 1.6 million).
Is the decline of stigma a bad thing? Yes, say creditors. No, say consumer advocates.
The worry seems to be that shameless consumers will declare bankruptcy at the drop of a hat to escape their financial obligations. However, the consumers who do that, assuming they are present in any significant number, have never had shame. For the rest of consumers who do not lightly shirk their financial obligations, the removal of any barrier–whether legal or social–to the one way they can escape crushing debt is a positive thing.
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