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Law and PsychologyCurrent Legal Issues Volume 9$
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Belinda Brooks-Gordon and Michael Freeman

Print publication date: 2006

Print ISBN-13: 9780199211395

Published to Oxford Scholarship Online: March 2012

DOI: 10.1093/acprof:oso/9780199211395.001.0001

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Consumer Bankruptcy Reform and the Heuristic Borrower

Consumer Bankruptcy Reform and the Heuristic Borrower

Chapter:
(p.446) 25 Consumer Bankruptcy Reform and the Heuristic Borrower
Source:
Law and Psychology
Author(s):

Susan Block-Lieb

Edward J Janger

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199211395.003.0025

In April 2005, the US Congress enacted, and President Bush signed into law, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the ‘Bankruptcy Bill’), which made radical amendments to the US Bankruptcy Code. These changes had the principal effect of restricting the ability of consumers to discharge debt in bankruptcy. The Bankruptcy Bill was presented by its proponents – representatives of the consumer credit industry – as protecting innocent lenders from being duped. These proponents contributed vast sums to sympathetic legislators, and to legislators who they hoped would become sympathetic. This chapter explores whether the picture of the paradigmatic debtor they paint is empirically accurate. It shows that the factual assertions that ostensibly motivated the Bankruptcy Bill are belied by data and the consumer credit industry's own behaviour. It suggests an alternate story that is both more plausible, and more problematic. Consumers do not overborrow in reliance on the availability of the bankruptcy discharge. Instead, they borrow honestly, but heuristically, often in response to aggressive solicitations, and default if (and, by and large, only if ) their debt load becomes crushingly great.

Keywords:   Bankruptcy Bill, consumers, borrowing, debt, debtors

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