Consumer Bankruptcy in Comparison: Do We Cure a Market Failure or a Social Problem

The Continental European and Scandinavian bankruptcy laws did not have provisions enabling the discharge of debt until quite recently. While bankruptcy law did not specifically exclude consumer debtors, in the absence of discharge, consumer bankruptcy was meaningless and rare. After the deregulation of credit markets in the 1980s, many west European countries faced a huge increase in consumer debt problems. Several countries passed consumer debt adjustment laws during the late 1980s and 1990s. Unlike the North American consumer bankruptcy laws, the European laws attach moral attributes to the access to adjustment procedures, which require a mandatory payment plan, and offer debt counselling. This article argues that the European laws reflect an understanding of overindebtedness as a social problem, rather than as a market failure.