Bankruptcy

Treatment and the European Perspective: Why Don't We Ask Whether US Debtors in Bankruptcy Have Other Social Problems?

By Jean Braucher

European debt adjustment systems have built in an assumption that people with debt problems also have higher incidence of other social problems?substance abuse, family dysfunction, weak impulse control, and perhaps also mental health problems such as depression and anxiety.  Social work has long been part of their systems for addressing problems of debtors, before and after European countries adopted laws beginning in the late 1980s to give debtors a discharge, generally after completion of rather long repayment plans (to show rehabilitation into more moral ways of behaving, while living at a subsistence level).  The European view has been that other problems drive overindebtedness, which in turn makes those problems worse.

In the US, we don?t seem to be giving much attention to these questions.  Is anyone aware of studies of US debtors in bankruptcy to see if they have higher incidence of other social problems such as those listed above?   And have Europeans empirically studied their theory that deviance drives debt?

The reasons for the different European perspective have to do with the social support provided by welfare systems there.  With good unemployment benefits and universal health care (and often meaningful usury limits), Europeans saw fewer reasons to get into a financial crisis involving too much debt. Furthermore, Europeans do not want social solidarity threatened by deviant behavior, making treatment the obvious solution to trouble with debt.

In the US, it seems vaguely politically incorrect to even raise the question whether the overindebted are deviant.  We haven?t gone beyond asking whether debtors? problems are driven by a lack of ?financial literacy.?  Part of the reason we don?t tend to ask whether debtors have other social problems suggesting deviancy may be that so many people carry a lot of debt and don?t save much or at all.  When a lot of people are behaving in a certain way, by definition they are not deviant. 

Europeans may be trending in our direction.  The global consumer credit market is making more and more credit available in Europe, and more and more people are getting into debt trouble there.  In this climate, European systems are focusing somewhat more on debt relief and less on treatment using social workers, a change that some decry.  We may be witnessing a gradual convergence of both experience and perspective on both sides of the Atlantic. But it still would be interesting to know if debtors in bankruptcy in the US have more social and mental health problems than other Americans.

Full post as published by Credit Slips on February 04, 2008 (boomark / email).