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Mann's Calls Study

posted by John Pottow

Professor Mann's proposed study is, as usual, interesting and thought-provoking.  (I confess to finding it somewhat exhibitionist to engage in a public dialogue with a colleague, awkwardly having to use the third person, but I guess that what a "blog" is all about.)  In any event, what I would counsel Professor Mann to consider as he pursues this project is the role of denial in the psychology of distressed debtors.  While his study is not designed to gather this sort of data specifically -- that is more the domain of co-blogger Professor Thorne -- it occurs that readers of this blog might have helpful anecdotal data to share with Professor Mann regarding his intuition that a bankruptcy filing comes in response to external legal prompting, and my related intuition that that passivity in turn stems from a denial of the seriousness of the debtor's affairs until objective forces conspire to make such denial no longer tenable.


Nice insight John. The stigmatization debates have never given credence to the intimidating effect the legal system has on ordinary people. The financially distressed often will be in denial of their financial position (as you suggest), and this denial and the intimidating proposition of calling a lawyer work together. My premise is that a direct confrontation with the legal system -- like the impending loss of a family home -- often is necessary to overcome those factors. By using quantitative data -- supplemented by interviews to help explain the filing patterns -- I hope to put some frame around the filing dynamics. It obviously will be left to the experts in survey design to assess the size of the many cuases (like garnishment and levy) that I cannot quantify. And more generally, the denial issue poses a problem for psychologists.

Particularly when the cause is "medical issues"--especially if there is a denial of a claim by an insurer involved--we can't neglect the overwhelming burden that the issues themselves place on people. When one is expending all of one's efforts on a medical crisis, and then has to deal on top of it with paying for necessary care, one has little attention left for the big picture of one's finances! (And even if there is some left over, who wants to discuss that with a lawyer--especially one who can't help with the underlying crisis?)

I'm just one of the 'ordinary people'. I'm also a volunteer on several credit-related forums that deal with credit/debt problems and bankruptcy. We see thousands and thousands of posts by people struggling with insurmountable debts and most of them are at the end of their ropes.

I must say that while some people are certainly in denial about the gravity of their financial situation, I don't believe it's denial that causes most people to delay filing for bankruptcy. I've read thousands of posts over the past 4-1/2 years on these boards. Contrary to what the credit industry would have the public, and our Congressman, believe, the majorty of people do NOT want to file bankruptcy. The common thread over and over is not denial that they're in over their heads, they are painfully aware of that.

The majority spend months, some a year or more, trying to find a way to NOT file bankruptcy. People will try negotiating with creditors and collection agencies for payment plans and/or settlements that will allow them to eat - most are met with ridiculous demands for amounts they can't possibly pay. Many are met with lawsuits for their efforts and many of those people then cave in and head to bankruptcy court. Others let the judgments roll and only concede to bankruptcy when the garnishments hit or their bank accounts are siezed. Some just get fed up with the nasty tactics of the collectors and just can't take it any more, so they come to the boards asking questions about bankruptcy.

Repeatedly people will say that they thought they could find a way to 'catch up', a way to pay their bills and get back on their feet. The general attitude is that they can beat it... but the fighting wears you down. If that is the denial of which you speak, then you're correct.

Just my 2 cents, from an 'ordinary' person.

I thank Ms. Tomlins for her post and appreciate her insights. The telephone interviews that were part of the 2001 Consumer Bankruptcy Project yielded some interesting data about these issues. Nearly all debtors reported trying multiple strategies to try to climb out of debt, with borrowing from family and friends and negotiating with creditors both being very common. I wouldn't characterize them as "passive" in relation to their mounting debt but I would agree with Ms. Tomlins that most people who wind up in bankruptcy were optimistic that they could improve their financial situations. It took most of them many, many months or more often years to reach the point of filing bankruptcy. The difficulty with John Pottow's suggestion that they "failed to recognize the 'seriousness' of their problems" is that it isn't clear if people can determine ex ante that their problems are the "serious" kind. We just don't know much about people who get into moderate financial trouble but then climb out without bankruptcy--whether through family/friends bailing them out, a lucky break in finding a second job, getting a creditor (like a large hospital) to write off a medical bill, etc. Learning something about these people is critical to evaluating when the "optimal" moment of filing is, and whether too many people delay filing too long.

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