The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both
![handle is hein.journals/ambank73 and id is 333 raw text is: The Rise of Consumer Bankruptcy:
Evolution, Revolution, or Both?
by
David A. Moss
and
Gibbs A. Johnson*
A surge in consumer bankruptcies over the past few years has set off
alarm bells in Washington and across the nation. Particularly since nonbusi-
ness filings broke through the psychologically important one-million barrier in
1996, words like crisis and scandal have become increasingly familiar in all
sorts of discussions about bankruptcy. At a Congressional hearing in April
1997, Senator Charles Grassley stated that America is in the middle of a
bankruptcy crisis.' Many prominent observers, including Sen. Grassley,
have placed the blame for increased consumer bankruptcy filings on declining
social stigma. In the past, Grassley asserted, one of the reasons people
didn't declare bankruptcy was a desire to protect their reputations. That
cultural deterrent has somehow disappeared.2 According to Michelle Cottle
of the Washington Monthly, No longer is filing bankruptcy tantamount to
sewing a scarlet 3' on all your clothing.3 Even the nation's chief central
banker, Alan Greenspan, appears to agree, announcing to Congress in early
1997 that [p]ersonal bankruptcies are soaring because Americans have lost
their sense of shame.4
This Article attempts to shed new light on the nature and the dimensions
of the alleged crisis by placing consumer bankruptcy within a proper histori-
cal and economic context. The empirical research presented below suggests
that something fundamental has indeed changed since the mid 1980s: con-
*David A. Moss is an Associate Professor at the Harvard Business School. Gibbs A. Johnson is a
lawyer in Washington, D.C. We are deeply indebted to Elizabeth Warren, Julio Rotemberg, Alexander
Dyck, Forest Reinhardt, and Louis Wells for their many suggestions and criticisms as we prepared this
paper. We also wish to thank Sarah Brennan for her outstanding research assistance and Margie Murphy
for her help in constructing and formatting the exhibits.
'Personal Bankruptcy Consumer Credit Crises: Hearings Before the Subcomm. on Admin. Oversight and
the Courts of the Senate Comm. on the Judiciary, 105th Cong, 1st Sess. (April 11, 1997) (statement of
Sen. Charles Grassley, Chairman), available in 1997 WL 182505 (F.D.C.H.) at 1.
2Id.
3Michelle Cottle, The Right to Default: When Did Bankruptcy Become an Accepted Fixture of Everyday
Life?, WAsH. MONTHLY, Mar. 1, 1997, at 14, 16.
4Quoted in Julie Kosterlitz, Over the Edge, 29 NAT'L J. 870 , 871 (1997).](ViewImageLocal?handle=hein.journals/ambank73&div=20&collection=&method=preview&ext=.png&size=3)
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The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both
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