Leveraging behavioural economics to optimise personal insolvency policies

Personal insolvency is governed by legal rules, but debtors encounter those rules under conditions of financial scarcity, stress, and informational complexity. Building on established behavioural economics and personal insolvency scholarship, this article examines how those conditions shape access to and use of legal relief. The article focuses on the Debt Respite Scheme, commonly known as Breathing Space (the terms are used interchangeably throughout this article) as a case study in behaviourally informed institutional design. It argues that the Scheme should reduce the frictions that prevent debtors from reaching regulated advice while preserving the statutory assessment and discretion of approved debt advisers (Note: Cass R. Sunstein, Sludge: What Stops Us from Getting Things Done and What to Do about It (MIT Press 2021)). The principal reform proposed is not automatic commencement of a moratorium. It is a targeted referral pathway in which appropriately timed and clearly framed creditor communications facilitate access to regulated debt advice, followed by an adviser‐led assessment of eligibility, appropriateness and timing. Financial coaching or digital support, if used, should remain optional, evidence‐led and supplementary to regulated advice. A shorter secondary analysis considers how stigma and public insolvency disclosure may discourage timely engagement and undermine rehabilitation. The article concludes that behavioural insights can refine, rather than displace, existing insolvency law by supporting proportionate, institutionally grounded and empirically evaluable reforms. Sustainable Development Goals (SDGs) : SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities), SDG 16 (Peace, Justice and Strong Institutions), SDG 17 (Partnerships for the Goals).