As for the debtors themselves, repeat filing rates are low even in the extremely generous U.S. system,  so “re-educating” bankrupt debtors does not seem to be of primary importance.  On the other hand, since relatively few cases of consumer bankruptcy result purely from excessive debt—as opposed to a liquidity crisis like job loss, medical problems, or family interruption—perhaps the small number of repeat filers are precisely that margin of filers on whom credit “re-education” efforts should concentrate.  It is impossible now to know how effective or necessary re-education of debtors might be.  But it is worth considering the attitude-shifting affects that the system might—or might not—have on debtors who might be lured back into the trap of overindebtedness.

The consumer bankruptcy system might also affect those not directly involved in the system, but who hear or see the messages it sends about the dangers of excessive debt.  If the risks of overborrowing can be made more frequent, recent, and/or salient for potential debtors, such information might at the margins influence the credit behavior of potential victims of overindebtedness.  People talk about others’ experiences in bankruptcy, and lawyer advertising, the news media, and government agencies  are increasingly involved in disseminating information about consumer debt and relief from excessive debt.  Widely dispersed information about the nature of the debt relief system might, therefore, have some effect on changing behaviors among financially healthy consumers weighing the risks and benefits of their credit options.

A.  The “Get-Out-Of-Jail-Free” System in the United States

The quick in-and-out structure of most U.S. consumer bankruptcies seems to offer little potential for increasing awareness of risk—either for debtors or for those outside the system looking in.  The overwhelming majority of consumer bankruptcy cases in the U.S. pass through “Chapter 7” of the Bankruptcy Code.   This system usually proceeds within three months through three simple and largely ministerial steps:  (1) the debtor’s filing of a petition for relief and detailed financial information, (2) the debtor’s meeting with a trustee to answer questions about the debtor’s financial situation, and (3) the trustee’s filing of a report of “no available assets” and entry of a judgment soon thereafter discharging the debtor from most unpaid debts.  The overwhelming majority of U.S. consumer debtors dedicate none of their future income to paying their debts.  After filing and meeting with the trustee once, they need not give another thought to the process that led them into and out of overindebtedness.

This system seems to ignore—indeed, perhaps even to aggravate—the biases that lead many consumers down the path of danger.  This quick and minimalistic approach to debt relief does very little to increase the “availability” of information about the potential risks and costs of overborrowing—neither among debtors passing through the system, nor among those who hear about the system’s operation second-hand.  To be sure, forcing debtors to admit publicly their financial “failure” and subjecting them to probing inquiry about their financial lives does increase the salience of credit risks somewhat.  I would not argue that no “stigma” attaches to bankruptcy in the U.S. today.  But the ease and speed with which ultimate relief arrives seems to rob the U.S. system of virtually any impact on longer-term attitudes.