3.  Belgium and the United States

The newest and the oldest players in the consumer bankruptcy arena appear to be among the worst offenders in terms of the consistency element of “fairness.”  Wide discretion creates the potential for serious “local legal culture” problems in the new Belgian system, as it does in Chapter 13 practice in the United States.

For the approximately one-third of all consumer bankruptcy cases filed under “Chapter 13” in the United States, the law vests broad discretion in the Bankruptcy Court to reject “wage-earner” payment plans that propose “insufficient” payments to creditors.  The U.S. Bankruptcy Code requires Chapter 13 debtors to propose a payment plan in “good faith” and to devote all of their “disposable income” to creditors for three to five years.   Courts in different districts—sometimes within the same state—have seized on the inherent ambiguity in these standards to impose widely varying requirements for “good faith” proposals and measures of “disposable” income.   U.S. scholars have clearly identified and critiqued the problem of “local legal culture” that these and other provisions produce among U.S. bankruptcy courts.  

Similarly, the new Belgian system creates inevitable local variations.  It vests the debt-mediators and courts with broad discretion to assign to debtors varying levels of sacrifice and varying amounts of relief.  A court-imposed plan may contain a wide variety of measures, up to and including partial discharge of debt.   But whether and to what extent such relief is offered is purely a matter of the unfettered discretion of the court.  Moreover, given the lack of guidelines, courts are free to demand greater or lesser payments from debtors.  The law seems to suggest that debtors generally be left with all of their exempt income, but certain judges might decide by “specially motivated” decision to cut deeper into debtors’ financial lives, so long as debtors retain the meager existence minimum guaranteed by law.   Some courts are bound to be more “specially motivated” to demand more from debtors than other courts.  Discretionary systems like the new Belgian one are apt to rate low on the “fairness” scale, and the payment demands they impose are therefore apt to lose their moral imperative.
Conclusion

Behavioral science has revealed systematic and persistent psychological biases and mental shortcuts that consumers use in making welfare-jeopardizing decisions and predictions about borrowing.  Behavioral economic analysis of the dangerous new world of consumer credit can therefore help us to be more sensitive and understanding of the plight of today’s consumer. She is psychologically overwhelmed and perhaps overpowered by the lure of buying now and paying later.  If these forces cannot be controlled or counteracted, as behavioral economics suggests, perhaps consumer bankruptcy systems can only offer effective relief as opposed to effective treatment of the problem of overindebtedness. 

If social education and the inculcation of payment morality are important goals of the consumer insolvency system, behavioral economics further suggests that payment plans might achieve these results, but certain tactics will jeopardize educational potential by souring debtors and perhaps others against systems perceived as “unfair.”  The behavioral economics perspective is certainly not “dispositive” of any question, but it certainly offers another compelling vantage point from which to evaluate different efforts to enhance the educational value of one system or another.  Given the returns to creditors in these systems (generally little or nothing), it appears as though education is the most plausible goal of consumer bankruptcy, and European lawmakers seem to be focused on that goal. 

Neither legislative history nor subsequent commentary contains any evidence that any legislature has considered or is even aware of the behavioral economics implications of any chosen approach to consumer debt relief.  But for what it might be worth, behavioral economics supports developments in, for example, the German system, while challenging the effectiveness of other European systems in achieving their goals of social education and inculcating payment morality.  I do not wish to overstate the ability of behavioral economics to identify the “best” system.  But I do propose that behavioral economics offers one useful, neutral perspective from which to judge and compare these systems.