Consumer Bankruptcy Around the World (Bank)
Thanks so much to Bob and everyone else at Credit Slips for inviting me to join on a more consistent basis! I'm absolutely thrilled to have this unique platform to share my observations on the world of bankruptcy, literally. With some early inspiration from my hero, Jay Westbrook, I've spent my entire academic career focused primarily on why and how countries beyond the United States have extended relief from overindebtedness to ordinary people, including "consumers" not engaged in significant business activity. The pace of development in this area has been mind-blowing over the past three decades, and for my inaugural Occasional post, I'd like to draw attention to a World Bank report that draws together much of this development and marks the extremely satisfying culmination of my own work in the area.
A working group of the World Bank decided a couple of years ago that financial distress and overindebtedness among individuals represented a structural drag on world economies and economic development. The group decided that the time was ripe to go beyond its focus on business insolvency and to undertake a survey of the state of law and policy around the world for treating the ills of insolvency among individual "natural persons" (a catch-all term designed to encompass human beings of all kinds, regardless of the source of their income and debt distress). A small drafting group was charged with recording our observations on the variety of evolving approaches to treating insolvency, noting particular attitudes and provisions that seemed either particularly successful or problematic in some sense. Other expert groups had undertaken this kind of survey in the past, but this was the first by an organization with the convening power and persuasive authority of the World Bank. In part for this reason, the project strictly avoided offering recommendations, instead confining itself to objective observations, both positive and sometimes critical.
For the next two years, we labored intensively over the World Bank working group's Report on the Treatment of the Insolvency of Natural Persons, soon to be released in its final version. The drafters and the working group hope this document will serve as an important landmark in the further development of consumer insolvency policy and law around the world. Indeed, at a meeting in December 2012, we learned that the draft of this report directly influenced policymakers in Colombia as that country adopted Law 1564 of 2012, the first Latin American law specifically designed to treat consumer insolvency.
I believe and hope that a particularly unique and important contribution in this Report appears in the long introductory section (pp. 19-43). It attempts to draw together the wide variety of reasons why a country might adopt a regime for treating personal insolvency. Benefits for creditors have long dominated discussions of the raison d'être of bankruptcy law, and humanitarian desire to offer benefits to debtors and their families are an obvious basis for the modern consumer discharge. But this introductory section reveals that legislators around the world have been most persuaded by an expansive list of benefits flowing to broader society. I hope modern discussions of the purposes of bankruptcy relief will begin incorporating this broader perspective, moving beyond the traditional focus on the simple, binary relationship between distressed debtors and their creditors. In any event, the World Bank Report provides a foundation for many, many discussions of the variety of evolving approaches to treating consumer insolvency around the world. There may well be no single best practice, but getting more countries to start practicing would be a great success for creditors, debtors, and societies everywhere, in my view.