bankrupt celebrity

THE EVOLUTION OF SOCIAL NORMS IN BANKRUPTCY [Abstract] BY: RAFAEL EFRAT* California State University Historically, societies harshly viewed individuals that have filed for bankruptcy protection. The negative perception of the bankrupts was manifested in the punitive measures employed against bankruptcy petitioners, in the degrading public rituals directed at them, and in the contemptuous discourse used by officials to refer to the bankrupts. This time-honored negative image of bankrupts was similarly shared beginning in colonial America and vigorously continuing so throughout the Victorian era and parts of the 20th century. By the 1960s, a number of critics have begun to voice their concerns about the dramatic rise in consumer bankruptcy filings in the United States. The critics have mostly attributed the increase in filing to an alleged decline in morals and shame associated with bankruptcy. Charges of fading bankruptcy stigma have recently intensified. A number of recent studies have attempted to collaborate assertions of declining stigma in bankruptcy through the use of indirect variables as proxies. These various attempts to measure bankruptcy stigma have been roundly criticized. The disapproval centers mainly on the studies’ failure to directly measure changes in public perception about bankruptcy. This study aims at measuring the evolution of stigma in bankruptcy by addressing the methodological concerns attributed to previous empirical studies on this subject. Rather than measuring bankruptcy stigma through the examination of indirect bankruptcy stigma proxies or through the questioning of former petitioners, this study measures evolving public perception about bankruptcy by directly examining the expressed sentiments of the general public. To ascertain whether the negative image of bankrupts has eroded in the United States over the past century and a half, 171 newspaper articles published between 1864 and 2002 about personal bankruptcy were examined for content. Examination of the content of personal bankruptcy related newspaper articles provides valuable measure into the evolution of public perception of bankrupts during that period. This study detected a noticeable shift in public attitudes beginning in the 1960s towards individuals filing personal bankruptcy. I. INTRODUCTION Historically, societies harshly viewed individuals that have filed for bankruptcy protection. The negative perception of the bankrupts was manifested in the punitive treatment of them, which included at times forfeiture of all property, relinquishment of spousal consortium, citizenship revocation, surrendering children as slaves, prohibition from holding public office, imprisonment and death.1 Aside from these severe punishments, bankruptcy petitioners were also routinely degraded and humiliated in Associate Professor of Business Law, California State University, Northridge. J.S.D., 2002, Stanford Law School; J.S.M., 1998, Stanford Law School; J.D., 1992, University of Southern California Law Center. I am grateful to Joseph W. Berriman, Keith Hamasaki, and Laura C. Gardner for their dedicated assistance in this research project. I am particularly thankful to Professor Richard Gunther for assistance with the statistical analysis of the data. 1 * See supra notes 29-40 and accompanying text. public. At times, the bankrupts were forced to sit in public and place a basket over their heads. In other instances, bankrupts were required to bang their buttocks on a rock before a heckling crowd, or wear distinguishing clothes in public, or simply be sold at a public auction to the highest bidder.2 Degradation and humiliation of the bankrupts were reinforced through official contemptuous discourse about the bankrupts using labels to refer to them such as “deceivers”, “frauds”, “offenders”, “cheaters” and “squanders”.3 This time-honored negative image of bankrupts was similarly shared beginning in colonial America and vigorously continuing so throughout the Victorian era and parts of the 20th century. By the 1960s, a number of critics have begun to voice their concerns about the dramatic rise in consumer bankruptcy filings in the United States. The critics have mostly attributed the increase in filing to an alleged decline in morals and shame associated with bankruptcy. While some bankruptcy stigma continues to exist today, charges of fading bankruptcy stigma have recently intensified. A number of recent studies have attempted to collaborate assertions of declining stigma in bankruptcy through the use of indirect variables as proxies. These various attempts to measure bankruptcy stigma have been roundly criticized. The disapproval centers mainly on the studies‟ failure to directly measure changes in public perception about bankruptcy. This study aims at measuring the evolution of stigma in bankruptcy by addressing the methodological concerns attributed to previous empirical studies on this subject. Rather than measuring bankruptcy stigma through the examination of indirect bankruptcy stigma proxies or through the questioning of former petitioners, this study measures evolving public perception about bankruptcy by directly examining the general public‟s expressed sentiments. This Article will begin with an examination of historical social norms regarding the bankrupt both globally and traditionally in the United States. Given the persistent historical and present manifestation of stigma in bankruptcy, this Article will attempt to address the question of why is stigma attached to bankruptcy. Part four of this Article will describe the recurring assertions made in public that the persistent stigma traditionally associated with bankruptcy has been in a decline in recent past. After describing the methodology and results of this study in measuring the evolution of public perception of personal bankruptcy, this Article will conclude with a discussion of the plausible reasons for the noticeable shift in public attitudes towards the bankrupts during the 1960s. II. THE EVOLUTION OF STIGMA IN BANKRUPTCY A. The Evolution of Stigma in Bankruptcy Outside the United States Historically, heavy stigma was closely associated with individuals who were declared bankrupt.4 The stigma arose since the debtor‟s conduct, leading up to the See supra notes 12-18 and accompanying text. See supra notes 19-24 and accompanying text. 4 See e.g., W.J. JONES, THE FOUNDATIONS OF ENGLISH BANKRUPTCY: STATUTES AND COMMISSION IN THE EARLY MODERN PERIOD 53 (1979) (suggesting that during the 17th century, bankrupts in England ―were considered by some as worse than highway robbers and more damaging than foreign enemies.‖); BARBARA WEISS, THE HELL OF THE ENGLISH: BANKRUPTCY AND THE VICTORIAN NOVEL 35 (1986) (―It is clear from such statements that bankruptcy was considered [during the Victorian era in England] a shameful condition, worthy of the harshest language.‖); M.S. Servian, Eighteenth Century Bankruptcy Law: From Crime to Process 38 (1985) (Ph.D. dissertation submitted at the University of Kent at Canterbury) (copy with author) 2 3 2 declaration of bankruptcy, was deemed deviant from traditionally accepted social moral norms.5 First, while traditional moral norms demanded that an individual act honestly towards all other members of society, bankruptcy filings were deemed either as fraudulent conduct on the part of the debtor toward his creditors6 or a reckless disregard of the debtor‟s moral obligation to repay her debts to the trusting creditors.7 Second, bankruptcy filing was deemed morally deviant because undertaking personal credit was viewed immoral.8 That is, bankruptcy filing suggested that the debtor failed to responsibly manage her personal financial affairs by not living within her means, and instead choosing to consume credit.9 In an attempt to voice their disapproval of the deviancy associated with personal bankruptcy and to reinforce the stigma associated with bankruptcy, societies historically adopted bankruptcy laws that emphasized the bankrupt's deceitful, quasi-criminal conduct in entering into bankruptcy, focused on degrading the bankrupt, and imposed significant (―‗Bankruptcy‘ laws have virtually universally carried with them social stigmatization for the bankrupt.‖); Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, reprinted in 39 GREAT BOOKS OF THE WESTERN WORLD 1, 148 (Robert M. Hutchins, ed., 1952) (―Bankruptcy is perhaps the greatest and most humiliating calamity which can befall an innocent man. The great part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it; as some do not avoid the gallows.‖); James Q. Whitman, The Moral Menace of Roman Law and the Making of Commerce: Some Dutch Evidence, 105 YALE L. J. 1841, 1871 (1996) (―To European authors everywhere in the seventeenth century, the declaration of bankruptcy was the single most scandalous phenomenon of commercial society. . . all of whom regarded the declaration of bankruptcy as a ghastly evil.‖); id. at 1876 (quoting a German pamphleteer of 1619 describing the reaction in the community of a bankruptcy filing as follows: ‖Once word of this makes the rounds and becomes known, the average man bursts out with imprudent, violent and angry words. He storms, curses, blasphemes, says scandalous and contemptuous things about debtors, denouncing them as rogues, thieves and men without honor . . . ―). 5 See e.g., WEISS, supra note 4, at 29 (1986) (―There is no denying the sincerity of the Victorians‘ moral outrage toward bankruptcy.‖) 6 For example, during the seventeenth century in France bankrupts referred only to the fraudulent debtors. See GEORGE J. BELL, COMMENTARIES ON THE LAW OF SCOTLAND AND ON THE PRINCIPLES OF MERCANTILE JURISPRUDENCE 471 (7th ed., 2nd volume 1868). Similarly, certain segments of the commercial society in medieval Italy formally referred to bankrupts as deceivers and frauds. See Bolkmar Gessner, et al., Three Functions of Bankruptcy Law: The West German Case, 12 L. & SOC. 499, 531 (1978). Lastly, the Bankruptcy Act in England in the early 18th century was titled: An Act to Prevent Frauds Frequently Committed by Bankrupts.‖ The introductory statement to the Act explains "that bankruptcy was caused not so much by reasons of losses and unavoidable misfortunes, but rather by an intent to defraud and hinder (creditors) of their just debts . . . ". See Jay Cohen, The History of Imprisonment for Debt and its Relation to the Development of Discharge in Bankruptcy, 3 J. LEGAL HIST. 153, 157 (1982). 7 The debtor‘s violation of the debtor-creditor trust relationship was deemed a violation of social norms because it was viewed as a betrayal of an almost sacred relationship. See Lisa J. McIntyre, A Sociological Perspective on Bankruptcy, 65 IND. L.J. 123, 136 (1989)(―Bankruptcy is an indication that one has betrayed (or is betraying) a trust that is judged to be important by many. Thus, the debtor contemplating bankruptcy anticipates that betrayal of this trust will lead to a shared outrage and stigma.‖); Servian, supra note 4, at 23 (―Judges [in England] saw bankrupts as posing a threat to the very fabric of their contemporary social order: credit was widespread in 18th century society, and someone who became insolvent posed a direct threat to the stability of that system.‖). 8 For example, during the 18th century England, the public held a restrictive view of personal credit, "for the law holds it to be unjustifiable practice for any person but a trader to encumber himself with debts of any considerable value." 2 W. BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 473-74 (1765-1769). 9 See G. CROMPTON, PRACTICE COMMON-PLACED: OR, THE RULES AND CASES OF PRACTICE IN THE COURTS OF KING'S BENCH AND COMMON PLEAS xix (3rd ed. 1786) (As one commentator on 18th century English law stated: "If persons in other stations of life [non traders] will run into debt without the power of judgment, the legislature has wisely left them to take the consequences of their own indiscretion."). 3 penalties on the bankrupt. The laws' emphasis on the bankrupt‟s deceitful, quasi-criminal conduct was reflected in the typical statutory requirements for commencing bankruptcy. Originally, commencement of bankruptcy was involuntary.10 To force an individual into bankruptcy, her creditors were required to demonstrate that the debtor engaged in one of several „acts of bankruptcy‟. Acts of bankruptcy included such things as fraudulent conduct of the debtor or concealment of assets.11 Hence, by linking fraudulent conduct with the commencement of bankruptcy, the bankrupt automatically earned the disrespect of society. In addition to the emphasis on the debtor‟s pre-petition conduct, many of the bankruptcy systems were intentionally degrading and humiliating towards the debtor. In ancient India, for example, unpaid creditors would sit and fast on the debtor‟s doorstep. As the starving creditor would reach exhaustion, the masses would join the creditor‟s sitin and demand repayment.12 During the ancient Greeks period, the bankruptcy laws forced the debtor to sit in the market place and place a basket over his head.13 During the Romans period, the insolvent debtor‟s body was auctioned off for sale in the middle of the commercial center in town.14 In pre-modern Italy, insolvent debtors were brought naked to a public square where they were required to bang their buttocks on a specially designated rock before a heckling crowd.15 During the 17th century in Scotland, the bankrupts were required to wear in public a one-half yellow and one-half brown coat and a cap.16 Similarly, in France the bankrupt was carried to the center of the market place where his bankruptcy commencement was publicly announced. Further, to avoid immediate imprisonment, the bankrupt was ordered to regularly wear a green bonnet.17 When they appeared before a judge, they were required to expose their naked bodies.18 These publicly humiliating rules and practices attempted to reinforce the stigma that was associated with bankruptcy. See Charles J. Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 330 (1991)(―Under this act (and almost three centuries hence) bankruptcy [in England] was purely involuntary as to the debtor.‖). See also Vern Countryman, Bankruptcy and the Individual Debtor and a Modest Proposal to Return to the Seventeenth Century, 32 CATH. U. L. REV. 809, 811 (1983). 11 See PETER J. COLEMAN, DEBTORS AND CREDITORS IN AMERICA: INSOLVENCY, IMPRISONMENT FOR DEBT, AND BANKRUPTCY, 1607-1900 269-70 (1974) (―Bankruptcy was a legal status, a condition arrived at by committing a proscribed act, such as concealing property from lenders, absconding, or transferring assets with fraudulent intent.‖); WEISS, supra note 4, at 35 (―this ‗terror‘ on the part of respectable businessmen at the name of ‗bankrupt‘ may be explained by the criminal origins of the laws of bankruptcy. The statutes passed by Henry VIII in 1542, which established the principles of later bankruptcy law, were penal laws aimed solely at fraudulent traders. These early bankrupts were treated as criminal offenders…The criminal origins of bankruptcy law were very likely one reason for the social disgrace that attached to it.‖). 12 See GEORGE SULLIVAN, THE BOOM IN GOING BUST: THE THREAT OF A NATIONAL SCANDAL IN CONSUMER BANKRUPTCY 24 (1968). 13 See Servian, supra note 4, at 38 (―[According to the ancient Boetian bankruptcy code], the Boetians caused their bankrupts to be disgraced by forcing them to sit in the market place with a basket on their heads.‖). 14 See 1 S. SCOTT, THE CIVIL LAW 63-64 (1932). 15 See Whitman, supra note 4, at 1873. 16 See BELL supra note 6, at 472. 17 See id. at 471. 18 See Whitman, supra note 4, at 1875 (to reinforce public conformation and humiliation of the bankruptcy petitioner, in 1490, French law mandated that petitioners appear before a judge and ―bare-headed and with their clothing handing open [to expose their naked bodies] to mark and augment their infamy.‖). 10 4 Another way by which legislator traditionally degraded the bankrupt was through labeling. The contemporary common usage of the label “bankrupt” carries with it a strong adverse social connotation.19 This negative connotation is largely a product of the traditional usage of the term. In medieval Italy, society commonly referred to bankrupts as “deceivers and frauds”.20 During the 16th century in England, the bankruptcy law repeatedly referred to the bankrupts as “offenders”.21 These associations between bankrupts and criminals fostered the stigmatization of bankrupts, which still exists today.22 Similarly, the words used in France to refer to bankruptcy petitioners suggest a strongly held contempt towards the bankrupts. The word “Bankruptcy” in French is based on the Latin word fallere, which means “to cheat, deceive, or trick.”23 Likewise, individuals, who are unable to pay their debts in bankruptcy, are referred to in French as “deconfiture,” figuratively meaning “to squander.”24 Apparently, the communities‟ cohesiveness has historically made it possible for these publicly humiliating and labeling practices to be very powerful in generating both deep fear of bankruptcy in the minds of the people,25 as well as, public censorship and ostracism against the bankrupts.26 The length of the ex-communication period for the bankrupt generally lasted for at least until the conclusion of the bankruptcy process, which typically ended once the debtor received a certificate of discharge.27 The exSee IAN F. FLETCHER, THE LAW OF INSOLVENCY 33 (1st ed. 1990) (―In everyday usage, the terms ―bankruptcy‖ and ―bankrupt‖ carry heavy connotations of personal disaster accompanied by social stigma, giving rise to the supposition that bankruptcy is a fate to be avoided at all costs.‖). The adverse connotation of the word ‗bankrupt‘ has been in existence for a long time. See Israel Treiman, Acts of Bankruptcy: A Medieval Concept in Modern Bankruptcy Law, 52 HARV. L. REV. 189, 189 (1938) (―Even without the disgrace implied in the very etymology of the term bankrupt, undiscriminating condemnation of the debtor who fails to meet his obligations will probably continue as long as human nature is what it is.‖). 20 See Gessner, supra note 6, at 531. 21 See FLETCHER, supra note 19, at 6; Servian, supra note 4, at 21. 22 See FLETCHER, supra note 19, at 6 (―The repeated references in the statute to absconding debtors as ―offenders‖ signifies the close identification between bankruptcy and criminality at this period, a stigma which was to endure until relatively recent times and one which has not yet been totally relinquished.‖). 23 See DANIEL DESURVIRE, HISTOIRE DE LA BANKQUEROUTE ET FAILLITE CONTEMPORAINE 11 (1992). ―Bankqueroute‖ in French refers to debtors on the road who departed without paying their debts and lived off their illicit gains. See Joseph Pomykala, Bankruptcy Reform: Principles and Guidelines, REGULATION (fall 1997). 24 See PASCAL ANCEL, DROIT DES SURETES 2-3 (2nd ed. 2000); J.H. DALHUISEN, DALHUISEN ON INTERNATIONAL INSOLVENCY AND BANKRUPTCY Sec. 3.02[1] (1983). 25 One King described his feeling toward bankruptcy stigma as follows: ―The stigma of bankruptcy has always terrified me.‖ Servian, supra note 4, at 229. In the 17th century, Shakespeare referred to a bankrupt individual as ―a prodigal who dare scarce show his face at the Rialto.‖). Id. at 38. 26 See Servian, supra note 4, at 229 (a bankrupt individual is stripped of his status and is separated from his community). 27 ―Till [the bankrupt]has gained [his certificate] he is separated from the community he has wronged.‖ Servian, supra note 4, at 222. In England, the period by which a bankrupt could have remained under the bankruptcy process without getting a discharge was sometimes indefinite. This observation was made by a British bankruptcy reform committee in 1982. It found that ―[p]rior to the Insolvency Act of 1976 [in England] the onus had been on the bankrupt to apply to the Court for discharge. Many did not do so, either through ignorance of the procedure or reluctance to attend open court and thus to attrac further publicity.‖). See also SIR KENNETH Cork, INSOLVENCY LAW AND PRACTICE: REPORT OF THE REVIEW COMMITTEE 142 (1982). A similar experience was reported in Israel. See Philip Shuchman, Field Observations and Archival Data On Execution Process and Bankruptcy in Jerusalem, 52 AM. BANKR. L.J. 341, 364 (1978). The author found that many bankruptcy petitions in Israel remained open but inactive for many years. The fact that many cases simply remain open for years with no activity and with no discharge demonstrates that debtors either do not apply for discharge 19 5 communication severely limited the bankrupt‟s ability to participate in both the social and economic functions of society.28 Lastly, another historical statutory manifestation of the negative perception held by societies against bankrupts can be observed in the draconian penalties and discrimination inflicted on insolvent individuals. Historically, penalties imposed on defaulting debtors included forfeiture of all property, relinquishment of the consortium of a spouse, imprisonment, and death.29 In the ancient bankruptcy code of the Indian, creditors were first allowed to remove a hand, then an eye of a bankrupt before killing him.30 Similarly, in the ancient Egyptian code, creditors were allowed to “pawn the embalmed bodies of the dead [debtors] for money”.31 In ancient Greece, debtors had to surrender their children to be exported as slaves and debtors had to forfeit their citizenship.32 In addition, creditors in ancient Greece were allowed to seize and retain the bodies of deceased defaulters until the debt was paid.33 In Rome, a creditor was allowed to privately imprison his defaulting debtor. If the debtor remained unable to pay, the creditor was permitted to sell the debtor into slavery. In cases of multiple creditors, Rome‟s Twelve Tables authorized the creditors to carve up the body of the debtor as a symbolic way of obtaining repayment.34 In Germany, the Hamburg Bankruptcy Acts of 1630 and 1753 imposed the threat of expropriation and imprisonment against some bankrupts.35 The British Bankruptcy Acts of 1604 and 1623, for example, provided that certain bankrupts be pilloried and lose an ear.36 Further reflective of the punitive nature of bankruptcy in England, the Bankruptcy Act of 1705 offered the death penalty for the fraudulent bankrupts,37 until an 1820 enactment replacing death with imprisonment of the altogether, or do apply for it and are denied. In the Jewish tradition, formal ostracism of the defaulting debtor was not generally practiced. However, during the 11th Century, some communities placed a ninety days ban against a debtor who fails to repay his debts, unless the debtor was able to demonstrate that he does not have the means to repay the debts. See MENACHEM ELON, FREEDOM OF THE DEBTOR‘S PERSON IN JEWISH LAW 38-49 (1964). 28 See Servian, supra note 4, at 230 (―[The certificate [of discharge]] does away with the criminal implication of the law, and restores a bankrupt . . . to credit and his former rank in society.‖); id. at 222 (―As we know, the swindler/undischarged bankrupt was outlawed from the merchant community both by his inability to receive or to earn money for himself, and by the immense stigma attached to his being undischarged bankrupt.‖); id. at 48 (―[A discharge] certificate actually rewarded a bankrupt with the opportunity to recommence trade as a new man.‖). 29 See Charles J. Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. L. INST. L. REV. 5, 7 (1995). 30 See Servian, supra note 4, at 42. 31 See id. 32 See SULLIVAN, supra note 12, at 24-5. 33 See BARBARA A. MATHEWS, FORGIVE US OUR DEBTS: BANKRUPTCY & INSOLVENCY IN AMERICA, 17631841, 9 (1994) (unpublished Ph.D. dissertation, Brown University). 34 See id.; Tabb, supra note 29, at 7. 35 See Gessner, supra note 6, at 532-33. 36 See STEPHEN ARIS, GOING BUST: INSIDE THE BANKRUPTCY BUSINESS 35 (1985) (―The practice in the seventeenth- and eighteenth-century England was only marginally less barbaric. In James I‘s time a crooked bankrupt could be ‗set upon the pillory in some public place for the space of two hours and have one of his or her ears nailed to the pillory and cut off‘‖); Ian P.H Duffy, English Bankrupts, 1571-1861, 29 AM. J. L. HIST. 283, 284-85 (1980); Tabb, supra note 10, at 330 & 32 fn.41. 37 See FLETCHER, supra note 19, at 8; Duffy, supra note 36, at 287. 6 bankrupt.38 During the 19th Century, bankrupts in France were disallowed from holding public office, sitting on juries, being stockbrokers, or appearing before the Bourse until they have paid their debts in full. Similarly in Germany at that time, bankrupts could not vote or hold seat in the parliament.39 While the draconian penalties related to bankruptcy have largely disappeared in the modern world, some significant penalties are still regularly imposed by many countries on bankrupts.40 These fault-based, degrading and punitive bankruptcy laws not only reflected the prevailing negative sentiments of society towards the bankrupts, but they also reinforced and perpetuated the social stigma associated with bankruptcy.41 B. The Evolution of Stigma in Bankruptcy In the United States The time-honored negative image of bankrupts was similarly shared during colonial America.42 Insolvent debtors were perceived as criminals and thieves,43 but mostly as slaves and dependents.44 This harsh view of the defaulting debtor was manifested in the formal imposition of unforgiving penalties, including imprisonment and flogging.45 Furthermore, the closely bounded and cohesive communities during the colonial period facilitated the imposition of various stern shaming practices directed at See Joseph Pomykala, Bankruptcy‘s Origins in Debtor Perpetrated Crime 4 (Oct. 2000) (unpublished manuscript, on file with author) (―Debtors convicted of bankruptcy in England could be hanged until an 1820 enactment substituted seven years, with or without hard labor, for the death penalty‖); Tabb supra note 29, at 7 (―Early English law had a distinctly pro-creditor orientation, and was noteworthy for its harsh treatment of defaulting debtors. Imprisonment for debt was the order of the day . . . .‖). The popularity of imprisonment for defaulting debtors was alluded to by a Seventeenth century English jurist, Sir Robert H. Hyde, who stated that: ―If a man be taken in execution, and lie in prison for debt, neither the plaintiff, at whose suit he is arrested, nor the sheriff who took him, is bound to find him meat, drink, or clothes; but he must live on his own, or on the charity of others; and if no man will relieve him, let him die in the name of God, says the law; and so say I.‖. JAMES L. BISHOP, A TREATISE ON THE COMMON AND STATUTE LAW OF THE STATE OF NEW YORK RELATING TO INSOLVENT DEBTORS 4 (3rd ed. 1895) (quoting Sir Robert H. Hyde). 39 See Pomykala, supra note 38, at 5. 40 See Rafael Efrat, Global Trends in Personal Bankruptcy, 76 AM. BANKR. L.J. 81 , 83 & 89-90 (2002) (describing penalties imposed on bankrupts in Italy, England & Canada). 41 See Gessner, supra note 6, at 532 (―[T]he penal sanctions associated with the verdict of bankruptcy, . . . carried a moral stigma and social disqualifications.‖). 42 During the initial years of colonization, most statutes were rather favorable towards the debtor. However, that sympathetic attitude soon disappeared. See COLEMAN, supra note 11, at 249. 43 See EDWARD CHANNING, A HISTORY OF THE UNITED STATES 184 (1921) (―the non-payment of debt … was looked upon as practically the equivalent of theft.‖). 44 See 7 BENJAMIN FRANKLIN, THE PAPERS OF BENJAMIN FRANKLIN, 342-49 (Leonard W. Labaree, ed. 1963) (―Think what you do when you run in Debt; You give to another Power over your liberty. . . . The Borrower is a Sale to the Lender, and the Debtor to the Creditor, disdain the Chain, preserve your Freedom, and maintain your independency: Be industrious and free; be frugal and free.‖); BRUCE H. MANN, REPUBLIC OF DEBTORS: BANKRUPTCY IN THE AGE OF AMERICAN INDEPENDENCE 130-31 (2002) (―The image of debtors as slaves was a common one before the Revolution. . . .‖); id. at 145 (―the imagery of insolvency was dependence.‖); SCOTT A. SANDAGE, DEADBEATS, KRUNKARDS, AND DREAMERS: A CULTURAL HISTORY OF FAILURE IN AMERICA, 1819-1893, 115-217 (1995) (unpublished Ph.D. dissertation, Rutgers Univeristy) (on file with Rugers University Library) (documentaing pervasive use of slavery metaphor in bankruptcy debates from 1820 to 1867). 45 See COLEMAN, supra note 11, at 249 (remarking that by the close of the 17th century, debtor‘s prison was widespread in the American colony); MANN, supra note 44, at 79 (―The only consistency among debt laws in the 18th century was that every colony, and later every state, permitted imprisonment for debt…‖); id., at 81 (―So accepted was the idea of imprisonment for debt in early America that opposition to it did not appear until the 1750s‖); SULLIVAN, supra note 12, at 29 (in the years that followed the American revolution, ―more people were imprisoned for debt than for any other reason.‖); Thomas E. Plank, The Constitutional Limits of Bankruptcy, 63 TENN. L. REV. 487, 518 (1996)(asserting that during the colonial period, debtor‘s prison was pervasive). 38 7 insolvent debtors.46 For example, to disgrace the bankrupt, the bankrupt‟s hair would be cut off.47 Also, the debtor‟s palm would be branded with the letter “T” for “thief” and he would be mandated to stand in a public square for two hours with an ear nailed and then have it cut off.48 While debtor‟s prison has become somewhat less popular during the 19th century,49 bankruptcy related stigma persisted with full force during that time.50 Bankruptcy continued being viewed by most as a crime and much of the Victorian era culture revolved around the humiliation associated with debtors‟ default.51 Bankruptcy stigma largely maintained its strong grip during the first half of the 20th century. Congressional testimony and law professor‟s writing all provide some anecdotal evidence of its pervasiveness during that time.52 One report to the President issued by the Attorney General in 1932 reinforced these sentiments when it asserted that many financially troubled individuals avoid bankruptcy filing “until all their assets are gone to avoid the stigma of bankruptcy.”53 Nonetheless, as debtor‟s prison came to an end in most states by the 1920s and as the number of consumer bankruptcies began to rise during the 1920s,54 both the Solicitor General and the Department of Commerce have See LAWRENCE M. FRIEDMAN, CRIME & PUNISHMENT IN AMERICAN HISTORY 37 (1993) (noting that shaming practices were routinely used during the small town and intimate communities during the colonial period); Toni M. Massaro, Shame, Culture, and American Criminal Law, 89 MICH. L. REV. 1880, 1915 (1991)(―the white colonists lived in intimate, closely bound, and normatively cohesive communities, with in which shaming could and did play a signal role in reinforcing standards of behavior.‖). 47 See Pomykala, supra note 38, at 4 n.2 (noting that in Colonial America, the bankrupt‘s hair would commonly be cut-off). 48 See Joseph S. Pomykala, Bankruptcy Laws: The Need for Reform, in LEGAL ENVIRONMENT OF BUSINESS, 178, 180 (Kurt Stanberry ed., 1st ed. 2000) (―In Colonial America, the palms of bankrupts were branded with a ―T‖ for thief. Punishment under Pennsylvania‘s Bankruptcy Act of 1785 borrowed from English custom and included standing the bankrupt in a public place for two hours then with an ear nailed to the pillory and then cut off. The ‗earmark‘ also served to mark the debtor as not being a reputable person with whom to contract debts.‖). 49 See EDWARD J. BALLEISEN, NAVIGATING FAILURE: BANKRUPTCY AND COMMERCIAL SOCIETY IN ANTEBELLUM AMERICA 12(2001)(beginning in the 1820s, the use of the debtor‘s prison in the United States began to decline, with several states limited imprisonment to instances of fraud.‖); MATHEWS, supra note 33, at 207(unpublished Ph.D. dissertation, Brown University) (describing the trend during the 19th century in a number of states of beginning to dismantle the institution of debtor‘s prison). 50 See e.g., In re Gibraltor Amusements, Ltd., 291 F.2d 22, 27 (2nd Cir. 1961) (alluding to the vigor of bankruptcy stigma during the 19th century) 51 See Marcus Cole, A modest Proposal for Bankruptcy Reform, 5 THE GREEN BAG 2d 269, 273 (2002). 52 See __CONG. REC. 4,877(daily ed. Feb. 24, 1932) (statement of Senator Hastings)(―The average American … looks with horror upon having to resort to the bankruptcy laws for relief. I have personally known of men who seriously considered ending their very existence rather than to be ever afterwards referred to as a person who escape paying his debts by voluntary bankruptcy.‖); In re Lawrence Products Company, Inc., 211 F. Supp. 301, 305 (1962) (―During the authorship of the Chandler Act [of 1938], many advocated the complete divorcement of Chapters X, XI, XII, and XIII from the Bankruptcy Act to avoid the stigma of bankruptcy.‖); Treiman, supra note 19, at 189 (professor asserting that bankruptcy stigma is as strong as it used to be during the 17 th century). 53 See MESSAGE FROM THE PRESIDENT OF THE UNITED STATES RECOMMENDING THE STRENGTHENING OF PROCEDURE IN THE JUDICIAL SYSTEM TOGETHER WITH THE REPORT OF THE ATTORNEY GENERAL ON BANKRUPTCY LAW AND PRACTICE, S. DOC. NO. 65, 72nd CONG., 1ST SESS. 9 (1932). 54 See THOMAS D. THACHER, ADMINISTRATION OF THE BANKRUPTCY ACT, REPORT OF THE FIFTY-THIRD ANNUAL MEETING OF AMERICAN BAR ASSOCIATION HELD AT CHICAGO, ILLINOIS, AUGUST 20, 21, & 22 , 1930, at 251, 255 (1930) (referring to a sharp increase in the number of consumer bankruptcy filings during the 1920s); Catherine, L. Kruchen, Domestic Relations-Support of Stepchildren-Obligation to Support Stepchild Held to be a Debt, Not a Legal Duty, and Therefore Step-parent’s Contempt of Court for Default in Support Payments Cannot be Punished 46 8 declared soon thereafter that stigma traditionally associated with bankruptcy was beginning to decline.55 By the 1960s, a number of critics have begun to voice their concerns about the dramatic rise in consumer bankruptcy filings. The critics (some from Congress, the mass media, the bar, and the academia) have mostly attributed the increase in filings to an alleged decline in morals and shame associated with bankruptcy.56 These allegations were made despite a number of contemporaneous studies that pointed out that bankruptcy stigma remains robust among the vast majority of Americans.57 A Supreme Court by Imprisonment. Brown v. Brown, 287 Md. 273, 412 A.2nd. 396, 10 U. BALT. L. REV. 190, 193 (1980) (indicating that by the 1920s, most states had abolished imprisonment for debt except for limited circumstances); 55 See VICTOR SADD & ROBERT T. WILLIAMS, U.S. DEP‘T OF COMMERCE, CAUSES OF BANKRUPTCIES AMONG CONSUMERS 8 (1933) (suggesting that bankruptcy stigma has been declining in recent years); THACHER, supra note 54, at 251, 255 (the Solicitor General of the United States blaming the rise in consumer bankruptcies during the 1920s on the decline of bankruptcy stigma). 56 See Wage Earner Plans Under the Bankruptcy Act: Hearing on H.R. 1057 & H.R. 5771 Before the House Comm. On the Judiciary, 90th Cong. 3 (1967) (Consumer bankruptcy in the United States is beginning to assume alarming proportions. … As a percentage of total bankruptcies, the figures are even more dramatic. In 1940, the figure was 25%, in 1966, it was 91%. … No, it is not the growth of installment sales which deserves the indictment. … It belongs, too, with changes that have taken place in society‘s attitudes about principles, values and priorities.‖); SULLIVAN, supra note 12, at 9 (―It wasn‘t many years ago that bankruptcy was regarded as a fairly wicked way to wash out one‘s indebtedness. Any man who went bankrupt was treated almost as a leper. Women filed about as often as they swam the English Channel. Bankruptcy had a stigma attached to it. It still does, but the scar it leaves isn‘t nearly so deep as it used to be.‖); Fred C. Fields, Needed Changes in Individual Bankruptcy, PROCEEDINGS OF OKLAHOMA INSTITUTE OF CONSUMER CREDIT MANAGEMENT FOR 1959 7 (1959), in GEORGE A. BRUNNER, PERSONAL BANKRUPTCIES: TRENDS & CHARACTERISTICS 4 (1965) (opining that the increase in bankruptcy filings by individuals is attributed to ―a change in the attitude of the public which condoned bankruptcy … that individual bankruptcy was not a disgrace, but just a smart business tactics … Debtors were taught to take the easy way out. The moral courage which had so long been dominant in our wage earners began to deteriorate. . . .‖); G. Stanley Joslin, The Philosophy of Bankruptcy- A Re-Examination, 17 U. FLA. L. REV. 189, 192 (1964) (―while one may become somewhat stigmatized as a result of bearing the label of a bankrupt, this stigma is becoming of diminishing social importance.‖); Making Bankruptcy Pay, TIME, Feb. 22, 1963, at 44 (―Once upon a time, when both morals and money were harder, bankruptcy was bad. But in these days of looking-glass economics, bankruptcy is growing more and more fashionable as a way to settle one‘s debts and lend some more credit.‖). 57 See HERBERT JACOB, DEBTORS IN COURT: THE CONSUMPTION OF GOVERNMENT SERVICES 113 ( 1969) (reporting on a U.S. Gallup Poll conducted for the Brookings Institution in 1966 which revealed that 55 percent would refuse or hesitate to do business with someone who had gone bankruptcy while 42 percent thought their friends and co-workers would think badly of them if they went bankrupt.‖); DAVID T. STANLEY & MARJORIE GIRTH, BANKRUPTCY: PROBLEM, PROCESS, REFORM 231(1971) (reporting the findings of a survey of 1,523 interviewees to the following question: ―Suppose you, yourself, got into a very difficult financial situation- how would you feel about going bankrupt?‖ Of the more than 75% who would not go bankrupt, 20% would not go bankrupt under any circumstances, 33% would go bankruptcy only as a last resort, 18% would feel disgraced if they did, and 5% could not conceive of going bankrupt.); Milton J. Huber, A Study of Financially OverExtended Families 28-29 (1965) (unpublished manuscript, on file with author) (reporting that a sizeable percentage of financially troubled individuals, who have opted not to file for bankruptcy, had declined bankruptcy ―on grounds of morality and pride.‖); William J. Preston, A Comparison of the Rationale and SocioEconomic Characteristics of Straight Bankruptcy and Chapter XIII Petitioners in the Denver, Colorado, Area 133 (1969) (unpublished doctoral dissertation, available at the library of Colorado State College) (reporting on an interview with a bankrupt who had asked his college age sister to leave the room where the interview was taking place as the petitioner did not want his sister to find out about his bankruptcy filing). 9 decision during the 1960s seems to confirm the results of these studies suggesting that bankruptcy stigma is as ever present.58 As discussed below, charges of fading bankruptcy stigma have recently intensified.59 Nonetheless, bankruptcy related stigma apparently has persisted to some extent over the past forty years. A formal report to Congress from the early 1970s declared that consumer debtors were “dissuaded from seeking relief by the moral stigma that clothes the process and by fear…”60 In recognition of the deterrence impact of stigma on bankruptcy filing, in the late 1970s Congress aimed at crafting a repayment chapter to the bankruptcy code as a way of alleviating “many debtors‟ desire to avoid the stigma attached to straight bankruptcy.”61 Aside from Congressional recognition of bankruptcy stigma, public polls during the 1980s and 1990s suggested that the majority of the population would be hesitant to vote into office or do business with anyone who had filed for bankruptcy.62 Another survey in 1993 found that more than three fourths of the former bankruptcy petitioners who were interviewed described their feelings about their bankruptcy filing as “just terrible.”63 Furthermore, writings from the academia and the mass media emphasized the shame and embarrassment associated with bankruptcy filing.64 Moreover, a number of published legal opinions tended to confirm that some judges find bankruptcy stigma to be persistent and real.65 However, perhaps the most See Perry v. Commerce Loan Co., 383 U.S. 392, 395 (1965) (―In such [straight bankruptcy] proceeding, everyone lost- the creditors by receiving a mere fraction of their claims, the debtor by bearing thereafter the stigma of having been adjudged a bankrupt.‖). 59 See Section IV. 60 REPORT OF THE COMMISSION OF THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R. DOC. NO. 93-137, 93rd Cong., 1st Sess., Pt. 1, at __(1973); id. at 15 (―The preponderant majority of debtors desire some means of paying their debts in preference to incurring the stigma and other consequences of bankruptcy.‖). 61 H.R. REP. NO. 95-595, 95th Cong., 2d Sess., at 118, reprinted in 5 U.S.C.C.A.N. 5787, 6078-79 (1978). 62 See Howard W. Odum Institute for Research in Social Science, California Field Poll (Oct. 1982), available at http://cgi.irss.unc.edu/tempdocs/ (last visited June 13, 2003) (finding that 53% of Californians polled would not have voted into public office anyone who had filed for bankruptcy); The Roper Center at the University of Connecticut, Public Opinion Online 1 (May 7, 1991) (reporting the findings of an opinion poll that 55% of the 909 adults surveyed by phone indicated that they would not do business or would be reluctant to do business with a former bankruptcy petitioner). 63 See The Roper Center at the University of Connecticut, Public Opinion Online 1 (Nov. 6, 1993). 64 See DAVID CAPLOWITZ, CONSUMERS IN TROUBLE: A STUDY OF DEBTORS IN DEFAULT 274 (1974) (―Since shame is attached to bankruptcy, many who are eligible for this relief do not seek it, and those who do are likely to pay immeasurable psychological costs.‖); Kathy R. Davis, Bankruptcy: A Moral Dilemma for Women Debtors, 22 L. & PSYCHOL. REV. 235, 239 (1998) (―Even though the bankruptcy laws have changed, the stigmatization of filing for bankruptcy and the moral aversion to it remains.‖); Philip Shuchman, An Attempt at a “Philosophy of Bankruptcy‖, 21 UCLA L. REV. 403, 416 (1973) (―Straight bankruptcy is degrading or at least tends to reduce the bankrupt‘s self-esteem or harm his conception of himself.‖); Michelle J. White, Why Don’t More Households File for Bankruptcy? 14 J.L. ECON & ORG. 205 (1998) (suggesting that the dramatic disparity between the number of households that actually file for bankruptcy vs. the number of households that could benefit from filing for bankruptcy may be explained by the presence of stigma that keeps households from filing). 65 See In re Walton, 866 F.2nd 981, 987 (8th Cir. 1989) (dissent) (―After all, no one really wants to be bankrupt and it is only after financial disaster strikes that anyone would seek to give up and be branded with the stigma of bankruptcy); In re Raymond, 12 Bankr. 906, 907 (Bankr. E.D. Va. 1981) (―Bankruptcy is a serious step; it holds its stigmas still. It is a unique judicial process where one is laid bare, financially. And remember this- it results in a court record for future employers, creditors, friends, realtives and the public to see. Would you grant a security clearance to one who cannot manage his financial affairs and files bankruptcy?‖); Freeman v. State, 767 P.2d 1354, 1357 (Okla. Crim. App. 1988) (finding bankruptcy stigma to be substantial, the court precluded the introduction of the defendant‘s prior bankruptcy filing as evidence during trial ―because its probative value is 58 10 profound manifestations of bankruptcy stigma were the reported instances where the bankrupt was petitioning the court to have his name change or have the petition dismissed altogether to avoid the perceived stigma he encountered.66 More dramatic are the results of General Social Survey during the last thirty years that reported an appreciable number of respondents believing that bankruptcy is an acceptable reason for committing suicide.67 Lastly, stigma has also been manifested through the anecdotal evidence of embarrassed bankrupts desperately searching for ways to conceal their bankruptcy filing from exposure to others.68 substantially outweighed by its prejudicial effect.‖); But see Bankruptcy – No Longer a Dirty Word, U.S. NEWS & WORLD REPORT, Apr. 7, 1975, at 52 (―The stigma once attached to taking a financial bath no longer seems to be an important consideration for many modern-day debtors, according to judges in bankruptcy courts across the country.‖). 66 See e.g., In re Komyathy, 142 B.R. 755, 756 (Bankr. E.D. Va. 1992) (debtor asking the court to dismiss her voluntary chapter 7 petition on the grounds that she wishes to avoid the stigma of bankruptcy); In re Martin, 30 Bankr. 24, 26 (Bankr. E.D.N.C. 1983); In re Blue, 4 Bankr. 580, 582 (Bankr. D. Md. 1980) (the debtors in this case sought to dismiss their petition two and one-half months after filing in order to avoid the stigma of bankruptcy); Names … Bankruptcy Stigma, 67 A.B.A. 1674-75 (Dec. 1981)(describing a bankruptcy petitioner‘s request from the court to have his name changed as the ―stigma of bankruptcy‖ attached to his name ―in the past and at present continues to irreparably harm him.‖); In re Stempler, 441 N.Y.S.2d 800 (1981)(granting a request to change a person‘s name where the petitioner, who had filed a voluntary petition of bankruptcy 16 years ago, wished to avoid the stigma of the prior bankruptcy adjudication) 67 See The National Opinion Research Center, General Social Survey 1972 - 2000 Cumulative Codebook (2000), available at http://www.icpsr.umich.edu:8080/GSS/rnd1998/merged/cdbk/suicide2.htm (last visited Jan. 12, 2004) (reporting that between 4.4% to 9.6% of the respondents find that bankruptcy filing is an acceptable reason to end one‘s life). 68 See TERESA A. SULLIVAN, ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE FRAGILE MIDDLE CLASS: AMERICANS IN DEBT 32 (2000) [Hereinafter ―FRAGILE MIDDLE CLASS‖] (―Public identification as a bankrupt debtor is embarrassing at best, devastating at worst. Bankrupt debtors have told us of their efforts to conceal their bankruptcy.‖); id. at 139 (reporting on bankruptcy stories that reveal ―self-loathing and humiliation in recognition of what their spending habits have brought them to.‖); Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, 540 (1993) (reporting that lawyers who represent consumer debtors describe their clients‘ feelings and attitudes as ―dejected, ashamed, humiliated,‖ and, although sometimes asserting that ―the sense of social stigma about bankruptcy has been waning in recent years,‖ saying that their ―clients are still often embarrassed or ashamed.‖); Sheila Driscoll, Note, Consumer Bankruptcy & Gender, 83 GEO L.J. 525, 541 (1994) (summarizing comments made during a focus group session of bankrupts as follows: ―Many [clients] have a strong bias against bankruptcy. They see it not only as a last resort but something bad and they require a lot of counseling for them to appreciate that they need to do it. One said, "My mother would turn over in her grave if she knew I was filing for bankruptcy." . . . . They feel [they] have committed a terrible sin and are ashamed to admit . . . they can't pay their bills. They don't want other members of their family to find out, they wonder whether it can be kept out of the newspapers. . . . I had one woman who was crying the whole time she was signing. But it was a matter of either your house in an hour from now, or sign.‖); William E. Geist, Rising Bankruptcies in Suburbia, THE NEW YORK TIMES, Mar. 30, 1982, at __ (―Many people in bankruptcy are embarrassed. One said that financial failure in the suburbs is ‗the one thing that is unforgivable – I don‘t think our friends will ever treat us the same.‘‖); Court Rejects Anonymity Request, 33 BCD NEWS & COMMENT 1 (Sep. 15, 1998) (bankruptcy judge rejecting petitioners‘ request to use their attorney‘s mailing address on their bankruptcy schedules and statements in order to avoid publicity as the petitioners‘ were especially concerned that their elderly parents and employers would learn of the filing); Is There Still a Stigma to Filing for Bankruptcy?, 7 CONSUMER BANKR. NEWS 10 (Feb. 12, 1998) (quoting the executive director of the American Bankruptcy Institute: ―We‘ve had at least two calls from literally irate former debtors complaining because [information about their case] is on the Internet and is therefore searchable by Internet search engines. Even though they used a taxpayer-financed federal court to receive a benefit , they said, ‗I don‘t want people to know.‘‖); How They Did it; A Credit Rehabilitation After Bankruptcy Filing, THE NEW YORK TIMES, May 14, 1994, at 36 (―Along with overcoming financial troubles, he spent about two years recovering from the trauma and the embarrassment of bankruptcy.‖). 11 III. THE REASONS FOR STIGMA IN BANKRUPTCY The persistent historical and present manifestation of stigma in bankruptcy raises the question of why is stigma associated with bankruptcy. Stigma can be defined as a devalued characteristic of a person that is deviant or contrary to norm of a social unit.69 The characteristic can be a physical deformity (disability, ugliness), a conduct (criminals, sexual orientation) or a group affiliation of the individual (religion, nationality or race).70 The norm is a shared belief of the particular social unit that individuals should act in a certain way under certain circumstances.71 Although pluralistic societies may have various conceptions of acceptable conduct, there is likely to be some broad understanding of what generally constitutes an acceptable conduct.72 As each social unit, based on its culture, adopts common beliefs about acceptable behavior of its members, it will attach stigma to the commonly held unacceptable conduct.73 Since stigma is a product of cultural forces, understanding of stigma requires an appreciation of the particular social unit‟s culture as perceived by the individuals.74 Furthermore, since culture changes over time, so does stigma.75 Certain non-conforming characteristics tend to be regarded by society as more deviant than others. For example, society is likely to be especially unsympathetic to nonconforming characteristics that are due to the individual‟s own fault. Generally, individuals with non-conforming characteristics that are due to physical or group affiliation are more likely to receive some degree of social acceptance since they are not considered to be blameworthy for their deviances. In contrast, individual with nonconforming conduct characteristics are more likely to receive harsher treatment by society since the individual is viewed as personally responsible for the non-conformity.76 See ROBERT M. PAGE, STIGMA: CONCEPTS IN SOCIAL POLICY 1 (1984)(―In the final analysis, stigma might best be considered to be the negative perceptions and behaviors of so-called normal people to all individuals who are different from themselves.‖).(citing other source); SHLOMO SHOHAM, THE MARK OF CAIN: THE STIGMA THEORY OF CRIME AND SOCIAL DEVIATION 15 (1970)(―An individual who differs in his personality or behaviour, or is considered different in a way that infringes the group‘s normative system, is liable to be stigmatized as being deviant. . . ―); Mark C. Stafford & Richard R. Scott, Stigma, Deviance, and Social Control: Some Conceptual Issues, in THE DILEMMA OF DIFFERENCE: A MULTIDISCIPLINARY VIEW OF STIGMA 80 (Stephen C. Ainlay et al. eds. 1986). 70 See ERVING GOFFMAN, STIGMA: NOTES ON THE MANAGEMENT OF SPOILED IDENTITY 4 (1963). 71 See Stafford & Scott, supra note 69, at 81. 72 See PAGE, supra note 69, at 3 (―Indeed, any classification [of social norms] is likely to be deficient in this respect given the diversity of opinion over the question of what actually constitutes a social norm. Nevertheless, there is likely to be some agreement concerning what can loosely be regarded as the ‗major‘ social norms in society (many of which will be embodied in legal codes).‖). 73 See Gaylene Becker and Regina Arnold, Stigma as a Social and Cultural Construct, in THE DILEMMA OF DIFFERENCE: A MULTIDISCIPLINARY VIEW OF STIGMA 40 (Stephen C. Ainlay et al. eds. 1986). 74 Id. at 55; Stephen C. Ainlay, et al., Stigma Reconsidered, in THE DILEMMA OF DIFFERENCE: A MULTIDISCIPLINARY VIEW OF STIGMA 3 (Stephen C. Ainlay et al. eds. 1986)(―Some of the particular attributes that disqualify people from full acceptance vary between cultural realms and across historical periods.‖); Becker & Arnold, supra note 73, at 40 (―A system of cultural beliefs is guided by a template of culture that individuals carry with them, underlying thought and action.‖). 75 See Ainlay, supra note 74, at 3 & 4. 76 See PAGE, supra note 69, at 6; IRWIN KATZ, STIGMA: A SOCIAL PSYCHOLOGY ANALYSIS, 4 (1981) (―Stigmas differ in the extent to which the possessor is likely to be held responsible by judges for his or her deviance. . . . Negative attitudes about the obese, for example, are tied to the belief that they could control their weight if they really wanted to.‖); Bernard Weiner, et al., An Attributional Analysis of Reactions to Stigma, 55 J. PERSONALITY 69 12 Traditionally, the stigma associated with bankruptcy arose partly because the underlying non-conformity of bankruptcy filing was deemed to be the result of the petitioner‟s own fault. Rather than attributing this non-conforming acts of failing to pay and of filing for bankruptcy to external factors (such as economic conditions, medical catastrophe, family dissolution), societies tended to place the blame on petitioner‟s disposition factors, such as overspending, overindulging and lacking personal responsibility.77 Beyond attribution of fault on the petitioner himself, stigma has also been associated with bankruptcy because the act of bankruptcy implied conduct that is contrary to prevailing traditional norms in America of trust, honor and thrift. The filing of bankruptcy has been viewed as a violation of trust between the debtor and the creditor. This betrayal by the debtor prompted the creditor and society at large to share outrage towards the debtor, which has led to stigmatization.78 Also, the filing of bankruptcy has been viewed as contrary to established norms of honor as bankruptcy has traditionally been associated with improvident, deceitful or criminal behavior.79Lastly, stigma has also been associated with bankruptcy as bankruptcy filing suggests conduct that is inconsistent with traditionally cherished personal disposition of thriftiness.80 IV. THE PERCEPTION OF THE DECLINE IN BANKRUPTCY STIGMA As described earlier, manifestations of bankruptcy stigma continue to persist today. Nonetheless, jurists, government officials, scholars, members of the credit industry, as well as, popular culture coverage report that the persistent stigma traditionally associated with bankruptcy has been in decline in recent past. Some lawyers and bankruptcy trustees have been reporting a decline in bankruptcy stigma in recent years.81 Their observation is largely attributed to the increased number of bankruptcy referrals that they have recently been receiving in their practice, as well as, to the dramatic increase in the bankruptcy filings.82 & SOC. PSYCHOL. 738 (1988) (the authors found that people with controllable stigmas are likely to be treated worse than people with uncontrollable stigmas). 77 See Rafael Efrat, Attribution Theory & the Perception of Abuse in Consumer Bankruptcy, 10 GEO J. ON POVERTY L. & POL‘Y. 205, 223 (2003). 78 See McIntyre, supra note 7, at 135 (suggesting that bankruptcy stigma may be the product of a perception that it amounts to a betrayal of trust relationships). 79 See FLETCHER, supra note 19, at 8 (describing how bankrupts were traditionally viewed in England as ―a species of criminal, continued to be reflected in the rigorous penalties to which they were subjected . . . ―)‘ COTTON MATHER, A FLYING ROLL, BROUGHT FORTH TO ENTER INTO THE HOUSE AND HAND OF THE THIEF 16 (Boston 1713) (―But then, To Borrow, without any due care to Repay or to Return that which has been borrowed; this is most certainly so near to a sort of Stealing, that it will bring one into a Bundle with that sort of Tares.‖). 80 See DAVID M. TUCKER, THE DECLINE OF THRIFT IN AMERICA: OUR CULTURAL SHIFT FROM SAVING TO SPENDING (1991) (detailing America‘s historical long running affair with the virtue of thrift and the antipathy towards consumer debt undertaking and consumption). 81 See e.g., Braucher, supra note 68, at 540(―Many lawyers said the sense of social stigma about bankruptcy has been waning in recent years…‖); Diana C. Bork, Why Personal Bankruptcies Are Surging, THE WALL STREET JR. (Jan. 29, 1997), at A-11 (―The bankruptcy code was also premised on the idea that a sense of personal responsibility would deter bankruptcy filings-filing carried a heavy stigma. That‘s not so today.‖). See Braucher, supra note 68, at 545 (noting that several lawyers attributed the increased client referrals to the declining stigma to bankruptcy); House Committee Looks at Bankruptcy’s Role in Consumer Credit Crunch, 6 CONSUMER BANKR. NEWS 3 (Oct. 5, 1996) (―My own experience as a bankruptcy trustee in consumer 82 13 Similarly, some judges also share these sentiments as reflected in their public statements and in judicial decisions finding evidence relating to prior bankruptcy filing to be non-prejudicial and hence admissible at trial.83 Aside from the judiciary branch, members of the executive, as well as, the legislative branch of the federal government have made pronouncements relating to the recent decrease in the influence of stigma in the personal bankruptcy context.84 Acknowledging that the stigma remains a deterrent to bankruptcy, many in the academia and private research institutions have recently asserted that bankruptcy stigma has declined.85 Perhaps the most vocal voice about the decline of stigma in bankruptcy is bankruptcy cases is that consumers are making their decisions to file for a Chapter 7 bankruptcy quicker and with less forethought or anxiety than in the past. The ease and simplicity of the filing process, together with the lack of any meaningful stigma attached to being a Chapter 7 debtor, contributes to this phenomenon.‖); George J. Wallace, Taking Aim at Consumer Bankruptcy, 173 BANKERS MAG. 26, 27 (Mar./Apr. 1990) (―Increasing use of bankruptcy in business and among consumers has significantly reduced the stigma that had discouraged consumers from more widespread use of the technique in the past.‖). 83 See e.g., State of Wisconsin, v. Galdine, 492 N.W.2n 188 (Wis. Ct. App. 1992) (judge concluding that the prejudicial effect of the evidence relating to the prior bankruptcy was limited particularly in light of the reduced stigma associated with bankruptcy filing); Honorable Edith H. Jones, Foreword: The Bankruptcy Galaxy, 50 S.C.L. REV. 269, 271 (1999) (―At one point, personal shame and social stigma would have bedeviled people filing bankruptcy, and their credit rating would have been ruined. That is no longer true.‖); Honorable Burton Perlman, A View from the Bench, 61 CINCINNATI L. REV. 511, 517 (1992) (―No one doubts that there is a stigma to the filing of bankruptcy, though there is a sense that the forcefulness of the stigma is fading.‖). 84 See 144 CONG. REC. 126 (statement of Senator Grassley) (―Bankruptcy should be difficult, and the moral stigma that used to be associated with bankruptcy ought to be resurrected.); 144 CONG. REC. 124 (statement of Senator Hatch) (Mr. President, the explosion in bankruptcy filings has less to do with causes and more to do with motivations. The stigma of bankruptcy is all but gone.‖); 144 CONG. REC. 74 (statement of Congresswoman Tauscher (―The stigma that was once attached to bankruptcy has disappeared.‖); 146 CONG. REC. S11485 (daily ed. Nov. 1, 2000) (statement of Sen. Kerry) (―There has been a decline in the stigma of filing for bankruptcy and appropriate changes are necessary to ensure that bankruptcy is no longer considered a lifestyle choice.‖); Donald L. Barlett & James B. Steele, Soaked by Congress, TIME (May 15, 2000), at 69 (―The only reasonable explanation [for the dramatic increase in bankruptcy filing] is that the stigma of bankruptcy is all but dead.‖) (quoting Congressman George Gegas); Bankruptcy Reform: Balancing the Interests of Debtors and Creditors, CONG. DIGEST (Dec. 1998), at 311 (―Today nobody cares about morality anymore. There is no moral stigma. Therefore, people go bankrupt.‖) (statement of Congressman Jerrold Nadler); House and Senate Committees Meet to Consider Bankruptcy Reform, 8 CONSUMER BANKR. NEWS (April 8, 1999) (in advocating in favor of bankruptcy reform, Senator Dodd asserted that ―the social stigma of bankruptcy is gone.‖); Julie Kosterlitz, Over the Edge, 29 Nat‘L J. 870, 871 (1997) (―Personal bankruptcies are soaring because Americans have lost their sense of shame.‖) (quoting Alan Greenspan, Chairman of the Federal Reserve); Congressman Bill McCollum, Bankruptcy Law- Reform or Leave Whole?, WASHINGTON TIMES (Jan. 4, 1998), at B3 (―The social stigma associated with filing for bankruptcy has rapidly eroded. . . .‖). 85 See Bankruptcy Reform Act of 1998: Hearing on H.R. 3150, H.R. 2500 & H.R. 3146, Before the House Comm. On the Judiciary, 105th Cong. __(1998) (statement of Stuart A. Feldstein, President of SMR Research Corp.) (―we believe there are non-financial issues behind the bankruptcy increase, including … a reduction in the social stigma once associated with bankruptcy.‖); The Increase in Personal Bankruptcy and the Crisis in Consumer Credit: Hearing on S105-89 Before the Subcommittee on Administrative Oversight and the Courts Senate Judiciary Comm., 105th Cong. ___ (1997) (statement of the American Bankruptcy Institute) (―Also noticeable is a profoundly different perception toward bankruptcy, consistent with a larger secular change in attitude toward debt and personal responsibility. Unlike a generation ago, there is no shame in debt any more; the stigma associated with bankruptcy has largely disappeared.‖); LAWRENCE M. FRIEDMAN, LAW & SOCIETY: AN INTRODUCTION 155 (1977); TERESA A. SULLIVAN, ELIZABETH WARREN & JAY L. WESTBROOK, AS WE FORGIVE OUR DEBTORS: BANKRUPTCY & CONSUMER CREDIT IN AMERICA 337 (1989)[Hereinafter ―AS WE FORGIVE OUR DEBTORS‖](―It may be that the social stigma of bankruptcy has declined in recent years, in part because of the 14 the credit industry.86 Some in the credit industry point to the increased filing by debtors who have not previously shown serious delinquency as evidence of the decline in stigma.87 Others from the credit industry have pointed to the rise in the number of bankruptcy filing as evidence of the fading stigma. Additionally, some in the lending community pointed to interviews held with bankrupts, who expressed no remorse for filing and who have exhibited relaxed attitude towards bankruptcy.88 Media outlets similarly have persistently suggested in editorial reports and investigation features that bankruptcy stigma has largely eroded over the recent past.89 Confirming these pronouncements, some recent polls of the general public have indicated that Americans, by and large, believe that bankruptcy currently has less social stigma than in bankruptcies of so many famous corporations and prominent individuals.‖); Margaret Howard, Bankruptcy Empiricism: Lighthouse Still No Good, 17 BANKR. DEV. J. 425, 451 (2001) (book review) (―Shame and stigma have traditionally counterbalanced the economic benefits available from bankruptcy, restraining many debtors from filing. As shame and stigma have declined, however, more and more debtors are recognizing the economic benefits of bankruptcy. This decline in shame and stigma is felt most carefully with respect to middle-class and upper-income debtors.‖); Judge Edith H. Jones & Todd J. Zywicki, It’s Time for Means-Testing, 1999 BYU L. REV. 177 (―In our view, the evidence now available tends to suggest that the recent rise in personal bankruptcies has been significantly influenced by a decline in personal shame and social stigma traditionally accompanying bankruptcy. . . ―); Joseph Pomykala, supra note 23, at 46 (―The moral cost of stigma felt by those who stiff their creditors has faded. Bankruptcy is no longer an embarrassment.‖). See e.g., Albert B. Crenshaw, Hill Panel Seeks Answers to the Bankruptcy Boom, THE WASHINGTON POST (Dec. 8, 1996), at H-1 (―Lenders also lament what they see as a growing societal acceptance of bankruptcy that removes informal pressures that consumers once felt to pay their debts.‖); Dawn Kopecki, American Debtors Turn to Chapters 7, 13: Bankruptcy Process Becomes Easier; Stigma of Insolvency Goes Belly Up, THE WASHINGTON TIMES (Feb. 15, 1999), at A-1 (―The stigma of filing for bankruptcy seems to be diminishing.‖) (quoting the president of the Credit Union National Association). 87 See The Increase in Personal Bankruptcy and the Crisis in Consumer Credit: Hearing on S105-89 Before the Subcommittee on Administrative Oversight and the Courts Senate Judiciary Comm., 105th Cong. ___ (1997) (statement of Don Banks, Director of the Legal Services for Retailers National Bank) (―Increasingly, notices of bankruptcy filings surprise creditors. Almost half of the time the debtor has shown no serious delinquency prior to the notice. That is evidence that the stigma formerly attached to bankruptcy has faded significantly…‖) 88 See VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS, 19 (1997) (―The social stigma that once attached itself to bankruptcy appears to have weakened substantially, if not disappeared entirely… But, while some of the debtors interviewed felt guilt about not having fulfilled their financial obligations, many others took a more relaxed attitude. … Some expressed no remorse at all…‖) 89 See e.g., Trevor Armbrister, Nation of Deadbeats?, READER‘S DIGEST, Sept. 1998, at 167 (―There is no longer any stigma attached to declaring personal bankruptcy, and some consumers now regard bankruptcy as the latest entitlement—a cost-free way to enjoy the American Dream.‖); Damon Darlin, The Newest American Entitlement, FORBES, Sept. 8, 1997, at 113 (―With the stigma of debt and bankruptcy gone, an increasing number of Americans are filing for bankruptcy.‖); Editorial, Making it Harder to Dodge Debts, ROANOKE TIMES & WORLD NEWS, May 14, 1999, at A14 (―Bankruptcy, much like unwed pregnancy, seems to have no stigma or shame attached to it these days.‖); Michael Higgins, Putting Back the Bite, 84 A.B.A.J., June 1998, at 74, 75 (noting bankruptcy‘s diminishing social stigma as filing have become more common); Jacob M. Schlesinger, House Approves Bankruptcy Overhaul Amid Criticism Bill May be Too Tough, WALL ST. J., May 6, 1999, at A28 (reporting that lenders and legislators blame the decline in bankruptcy stigma for the filing surge); Sandra Ward, Bailing Out, BARRONS, June 17, 1996, at 17 (―In short, bankruptcy, once viewed as shameful, has become an accepted part of the American way of life and debt. To a broad swath of the population, the stigma that formerly accompanied it is gone.‖); Jae-Bok Young, Personal Stigma Eases as Bankruptcy Lines Grow Even Longer, CHRISTIAN SCI. MONITOR, Apr. 8, 1993, at p. 1; Editorial, Bankruptcies, RICHMOND TIMES, Jan. 9, 1998 at A-12 (―The reasons for the surge in bankruptcies include: excessive consumer debt, the disappearance of the social stigma formerly associated with bankruptcy…‖). 86 15 previous years.90 While there seems to be a wide spread perception of a recent decline in bankruptcy stigma in the United States, no vigorous empirical study has yet directly demonstrated it. The absence of such a study is partly due to the difficulty in measuring societal changes in attitude over time towards bankrupts.91 Nonetheless, a number of studies have recently attempted to indirectly measure changes in bankruptcy stigma. Some of these studies have found that bankruptcy stigma remains potent.92 However, For example, Senator Charles Grassley has referred to a public opinion poll that found that 85% of Americans believe that bankruptcy currently has less stigma than in the past. See Todd Zywicki, Why So Many Bankruptcies and What to Do About It: An Economic Analysis of Consumer Bankruptcy Law and Bankruptcy Reform 83 n.317 (2003) (unpublished manuscript, George Mason University School of Law‘s Law & Economics Working Paper Series Number 03-46) (on file with author). See also James Carter, The Bankrupt 1990s, J. COMM., July 10, 1997, at 9A (―As more Americans declare bankruptcy, the stigma once associated with it has diminished. In a recent USA Today poll, 43 percent of the general public said bankruptcy was an acceptable way to overcome financial difficulties.‖). 91 See e.g., MANN, supra note 44, at 255 (―there is no evidence that bankruptcy has ever lost its stigma); Jean Braucher, Increasing Uniformity in Consumer Bankruptcy: Means Testing as a Distraction and the National Bankruptcy Review Commission’s Proposals as a Starting Point, 6 AM. BANKR. INST. L. REV. 1, 7 (1998) (―The stigma associated with bankruptcy is difficult to measure. Solid empirical, as opposed to anecdotal, evidence that it has decreased is hard to come by.‖); A. Mechele Dickerson, Bankruptcy Reform: Does the End Justify the Means?, 75 AM. BANKR. L.J. 243, 267 (2001)(―Though critics claim that the stigma previously associated … with filing for bankruptcy has all but disappeared, it is virtually impossible to substantiate that claim.‖); David B. Gross & Nicholas S. Souleles, An Emprical Analysis of Personal Bankruptcy and Delinquency, 15 REV. FIN. STUD. 319, 321(2002) (―The various costs of default, especially social, legal and information costs, are inherently difficult to measure.‖); Margaret Howard, A Theory of Discharge in Consumer Bankruptcy, 48 OHIO ST. L.J. 1047, 1061 (1987)(noting lack of data to support the ―psychological dimension of bankruptcy known as stigma.‖); Charles A. Luckett, Personal Bankruptcies, in THE IMPACT OF PUBLIC POLICY ON CONSUMER CREDIT, at 69, 76 (Thomas A. Durkin and Michael E. Staten, Eds., 2001) (noting that ―none of the typically cited social or legal factors are easily quantifiable‖); David A. Moss & Gibbs A. Johnson, The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both?, 73 AM. BANKR. L.J. 311, 327 (1999) (―The biggest problem with the stigma explanation [for the increase in bankruptcy filings] is that we simply do not have much hard evidence regarding the magnitude or significance of bankruptcy stigma, either over time or at a particular moment in time.‖); Zywicki, supra note 90, at 84 (unpublished manuscript, George Mason University School of Law‘s Law & Economics Working Paper Series No. 03-46) (on file with author) (―empirically measuring changes in broad and diffuse social factors, such as shame and stigma is difficult and do not easily lend themselves to direct testing.‖). 92 See e.g., FRAGILE MIDDLE CLASS, supra note 68, at 32 (―Discharging debts that were honestly incurred seems the antithesis of middle-class morality. Public identification as a bankruptcy debtor is embarrassing at best, devastating at worst. Bankrupt debtors have told us of their efforts to conceal their bankruptcy.‖); Kartik Arthreya, Shame as it Ever Was: Stigma and Personal Bankruptcy, 90 FED. RES. BANK RICH. ECON. Q. 1, 3 (2004) (―Therefore, a main conclusion of this article is that stigma is by no means dead.‖); Teresa A. Sullivan, Bankruptcy and the Social Meaning of Credit, 10 fn.6 (June 1991) (unpublished paper presented at the annual meeting of the Law & Society Association in Amsterdam) (on file with author) (―An appreciable number of respondents in the General Social Survey still report that bankruptcy is an acceptable reason for committing suicide.‖); Deborah K. Thorne, Personal Bankruptcy through the Eyes of the Stigmatized: Insight into Issues of Shame, Gender and Marital Discord, 73, 78-79, 94 & 267(May 2000) (unpublished dissertation, Washington State University) (on file with author) (based on survey results of petitioners, the researcher found that prior to filing, the majority of bankruptcy petitioners viewed bankruptcy as stigmatizing, were reluctant to file and did not want their friends and family to know about their filing); White, supra note 64, at 205 (Author estimated, based on a national sample, that at least 15% of the households could benefit from filing for bankruptcy, yet the personal filing rate represents less than 1% of the adult population. The author suggested that one explanation for the disparity is the powerful influence of stigma); Frederick C. Yeager, Personal Bankruptcy and Economic Stability, 41 SOUTHERN ECON. J. 96 (1974) (pointing out to the stable relationship overtime between the personal filing rate and the household debt-to-income ratio as an indication that a change in bankruptcy stigma was unlikely). 90 16 most of the studies that have attempted to measure bankruptcy stigma have concluded that it has been lessening.93 To measure bankruptcy stigma these studies have consistently used indirect variables as proxies for the effects of stigma. For example, a number of studies have used the level of bankruptcy filings as a proxy of declining stigma.94 Other studies have concluded that bankruptcy stigma has declined as reflected in the rise of bankruptcy advertising,95 changes in community size, as well as, migration patterns.96 Also, a series of the credit industry studies have determined that bankruptcy stigma has lessened as evidenced by the increased number of petitioners finding out about bankruptcy from family and friends.97 Yet another study has concluded that bankruptcy stigma has declined See e.g., VISA, CONSUMER BANKRUPTCY: CAUSES AND IMPLICATIONS (July 1996) (claiming that a reduction in stigma and changes in other social factors prompted the rise in personal bankruptcy filings between 1981 and 1996); F.H. Buckley & Margaret F. Brinig, The Bankruptcy Puzzle, 27 J. L. STUDIES 187, 188 (1998) (concluding that a lessening of stigma and other social norms were responsible for the increase in personal bankruptcy filing rates between 1980 and 1991); Scott Fay, et al., The Bankruptcy Decision: Does Stigma Matters? (Jan. 1998) (unpublished manuscript, University of Michigan, Working Paper 98-01) (on file with author) (asserting that a reduction in stigma of bankruptcy contributed to the increase in personal bankruptcy filing rate in the early 1990s); David B. Gross & Nicholas S. Souleles, Explaining the Increase in Bankruptcy and Delinquency: Stigma Versus Risk-Composition (1998) (unpublished manuscript) (on file with author) (claiming that a reduction in stigma led to a rise in the number of bankruptcy filings between 1995 and 1997). 94 See Paul C. Bishop, A Time Series Model of the U.S. Personal Bankruptcy Rate, 98-01 BANK TRENDS 1, 8 (Feb. 1998)(finding a ―large difference‖ between actual bankruptcy filing rates and the rates that would be predicted based on various household economic distress indicators, which ―suggests that there are other factors of importance,‖ such as changes in social norms); Buckley & Brinig, supra note 93, at 188 (―the explosion in bankruptcy filings is in substantial part attributable to a shift in social norms [not legal and economic variables.‖); Scott Fay, Erik Hurst, & Michelle White, The Household Bankruptcy Decision, 92 AM. ECON. REV. 706, 716 (2002)(―These results are consistent with local trends occurring in which increases in a district‘s bankruptcy filing rate cause attitudes toward bankruptcy to become more favorable and therefore individual households‘ probability of filing rise.‖); David B. Gross & Nicholas S. Souleles, An Empirical Analysis of Personal Bankruptcy and Delinquency 22 (1998) (Wharton Financial Institutions Center Working Paper 98-28) (showing credit card holders 1% more likely to file bankruptcy in 1997 than 1995, controlling for household riskcomposition along several dimensions. Their interpretation is that bankruptcy stigma has decreased). 95 See The Rise in Personal Bankruptcy: Causes and Impact Before the Subcomm. On Commercial and Admin. Law of the House Comm. On the Judiciary, 105th Cong. *18019 (1998) (testimony of Stuart A. Feldstein, President of SMR Research) (finding that ―cities with high bankruptcy filing rates usually do have higher levels of lawyer advertising than cities with low filing rates.‖); Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS, 9 (1998) (FDIC, Division of Insurance, 98-103), available at http://fdic.gov/bank/analytical/bank. (finding that increases in the rate of bankruptcy filing have correlated strongly with increased expenditures on legal advertising following a 1977 Supreme Court decision that struck down restrictions on such advertising). 96 See John M. Barron, et al., Monitoring the Household Sector with Aggregate Credit Bureau Data, BUSINESS ECON. 63, 71 (Jan. 2000)(using the proxy of population density levels to ascertain the role of social norms in bankruptcy filing); Buckley & Brinig, supra note 93, at 188 (The authors regressed the consumer bankruptcy filing rates for 86 district against legal, economic and social variables. Variables used as proxies for the strength of social networks were rates of migration and the percentage of the population living in a metropolitan area. They concluded that legal and economic variables were unable to account for the increase in filing rates, but that social variables were ―powerful predictors‖ of filing rates.‖); Fay, Hurst, & White, supra note 94, at 712 (using cross-section data, the authors tried to identify time-series trends within various communities that suggest a lower level of disapproval of bankruptcy over time in given communities.‖); AS WE FORGIVE OUR DEBTORS, supra note 85, at 244-46 (noting correlation of migration history with propensity to file bankruptcy). 97 See VISA, 2000 LIFE AFTER BANKRUPTCY STUDY, 5 (Aug. 2000) (―The increasing trend in the number of people learning about bankruptcy through friends and family members has been demonstrated in each annual debtor survey, and is once again confirmed in this study.‖); VISA, CONSUMER BANKRUPTCY: ANNUAL 93 17 as evidenced by the rise in the number of bankruptcy filings filed by non-delinquent debtors.98 Lastly, one credit industry sponsored study has relied on the rise in the number of bankruptcy petitioners, who have not pursued credit counseling prior to filing,99 and the alleged rise in the number of repeat filers,100 as evidence for declining bankruptcy stigma. These various attempts to measure bankruptcy stigma have been roundly criticized. The disapproval centers mainly on the studies‟ failure to directly measure changes in public perception about bankruptcy. Instead, the studies have routinely relied on indirect variables, or stigma proxies, to measure changes in public perception.101 In addition to the over reliance on indirect proxies for ascertaining the decline in bankruptcy stigma, others have also criticized these findings since they have focused on questioning former petitioners to ascertain existing stigma levels. Since the bankruptcy population is not sufficiently representative of the general population, questioning former petitioners BANKRUPTCY DEBTOR SURVEY 2 (Aug. 1997) (―Fully 45.3 percent of the respondents said they learned about bankruptcy as an option from friends or family. That‘s a substantial increase over the previous year‘s 10.5 percent and, taken together with other research information, suggests a further weakening of the once strong social stigma against bankruptcy.‖). 98 See Consumer Debt: Hearing Before the House Comm. on Banking and Financial Services, 104th Cong. 331 (Sept. 12, 1996) (testimony of Dr. Lawrence Chimerine, Managing Director and Chief Economist of Economy Strategy Institute and Consulting Economist for MasterCard International Incorporated) (―The share of bankruptcy filers who have never been delinquent on any loan appears to now be 50% or higher, and has risen sharply in recent years. This suggests that factors other than debt are increasingly driving the process. This is far different than the situation which prevailed in earlier decades, when bankruptcy was generally a last resort. . . Today, bankruptcy is increasingly becoming first option, and the old time profile no longer appears to be representative.”); Bankruptcy Law Revision Before the Subcomm. On Commercial and Admin. Law of the House Comm. On the Judiciary, 105th Cong. *5 (1998) (testimony of Mallory B. Duncan, Vice President, General Counsel of National Retail Federation), available in 1998 WL 8993460 (noting that for many retailers ―more than 40% of the bankruptcy petitioners received are from customers (often long-standing) who are not seriously delinquent‖). 99 See Consumer Debt: Hearing Before the House Comm. on Banking and Financial Services, 104th Cong. 428-29 (Sept. 12, 1996) (written statement of VISA U.S.A. Inc.) (―Of course, there are many reasons for these [personal bankruptcy filings] increases. But surely one reason is that bankruptcy no longer appears to carry the social stigma it once did . . . In a Visa survey of individuals who had filed for bankruptcy during a 12-month period in 1995 and 1996 … less than half of the respondents sought credit counseling before deciding to file for bankruptcy, further evidence that an increasing number of people appear to choose bankruptcy as the ―solution‖ to their financial difficulties rather than as a ‗last resort‘.‖) 100 See id. (concluding that bankruptcy no longer carriers the stigma it once did, the author refers to the results of a survey of bankruptcy petitioners finding that ―almost 14% of the respondents had filed for bankruptcy two or more times.‖). 101 See CONGRESSIONAL BUDGET OFFICE, PERSONAL BANKRUPTCY: A LITERATURE REVIEW xi (2000) (―Several studies maintain that the social stigma associated with filing for bankruptcy plays a significant role in determining the filing rate, but at best, those findings are merely suggestive. Because direct measures of stigma do not exist, the studies used other variables as proxies- that is, to approximate the effects of stigma. However, the proxy variables did not isolate stigma‘s influence on the filing rate. . . . Consequently, the studies probably overstated the effects of stigma.‖); FRAGILE MIDDLE CLASS, supra note 68, at 264 (―Most recent analyses of the ‗decline in stigma of bankruptcy‘ do not use any direct measure of stigma.‖); Thorne, supra note 92, at 70 (criticizing a previous study, that relied on bankruptcy proxies to conclude that bankruptcy stigma has declined, for failure to operationalize the crucial independent variable of stigma); David B. Gross & Nicholas S. Souleles, An Empirical Analysis of Personal Bankruptcy and Delinquency 3 (1998) (Wharton Financial Institutions Center Working Paper 98-28) (―Unfortunately it has been difficult to disentangle the risk and stigma effects empirically. First, it is not obvious how to operationalize the stigma effect. Most of the proxies for stigma that have been suggested run into the problems of endogeneity and reverse causaility. For example, consider using the number of advertisings by bankruptcy lawyers as an inverse proxy for stigma. The problem is that an increase in ads might not be the cause of the rise in bankruptcies, but rather their effect.‖). 18 does not provide a reliable indicator of the general public‟s perception.102 V. AN EMPIRICAL STUDY NEWSPAPER ARTICLES A. ON STIGMA IN BANKRUPTCY: A CONTENT ANALYSIS OF Research Methodology & Justification This study aims at measuring the evolution of stigma in bankruptcy by addressing the methodological deficiencies attributed to previous empirical studies on this subject. Rather than measuring bankruptcy stigma through the examination of indirect bankruptcy stigma proxies or through the questioning of former petitioners, this study measures evolving public perception about bankruptcy by directly examining the general public‟s expressed sentiments. To ascertain whether the negative image of bankrupts has eroded in the United States over the past century and a half, 171 newspaper articles published between 1864 and 2002 were examined for content. Examination of the content of consumer bankruptcy related newspaper articles provides valuable measure into the evolution of public perception of bankrupts during that period. This study chose the popular print media as its corpus because it is the most inclusive, providing forum for disparate communities and individuals to exchange ideas and debate proposals. It functions as the general population‟s quasi town square, providing daily chronicle of how social problems are defined and perceived within society. Often embedded within newspaper articles on consumer bankruptcy are important messages made by the author about the appropriateness of bankruptcy filing, about the causes of bankruptcy filing, and the validity of debt relief provisions in a bankruptcy regime. While messages communicated in newspaper articles do not precisely reflect broad populace attitudes, this study attempts to identify such messages in a sample of newspaper articles and use the embedded messages as a measure for broad and evolving societal perception about the bankruptcy population. The articles were selected from the New York Times based on pre-defined criteria. The New York Times was selected because it is amongst the most widely circulated daily newspapers and serves as a good representation of mainstream print media, which largely reflects popular consciousness about past and contemporary social issues. Also, the New York Times was selected because of its diverse readership and its national scope. Lastly, the New York Times was selected because it is the only mass circulated newspaper that has its content indexed as far as the mid 19th century. See Howard, supra note 85, at 453 (―researchers who have attempted to study the stigma of bankruptcy have done so by looking at debtors. . . . Until a statistically valid study of the general population‘s attitude toward the stigma of bankruptcy is undertaken, we should have no patience with assertions of declining stigma or with arguments for statutory change that are justified by resort to those assertions.‖); Todd J. Zywicki, An Economic Analysis of the Consumer Bankruptcy Crisis, 62 n.256 (2004) (unpublished manuscript, George Mason University School of Law‘s Law & Economics Working Paper Series Number 04-35) (on file with author) (―it is not methodologically correct to ask whether someone feels ―ashamed‖ from filing bankruptcy or perceives social disapproval.‖). 102 19 The New York Times Index was used to identify articles about consumer bankruptcy between 1864 and 2002. The search began with the year 1864 because that was the first year when the New York Times begun indexing its articles; hence making it possible to efficiently locate articles on the bankruptcy system. Articles were located under the key word “bankruptcy.” Only articles that discuss the utilization level of personal bankruptcy, the causes of personal bankruptcy, the appropriateness of personal bankruptcy filing, or articles that discuss the scope of debt relief that should or should not be available to individuals in bankruptcy were selected under the “bankruptcy” heading. Excluded from the sample were articles that were not completely or substantially about personal bankruptcy; articles written by current or former bankrupts; articles on topics other than personal bankruptcy (i.e., corporate or municipal bankruptcy); articles about bankruptcy in other countries; or articles exclusively discussing the administration of the bankruptcy system. Once the sample of articles was collected, four content evaluators coded the articles. A questionnaire was developed to evaluate and assist the content evaluators in their assessment of the articles. The content evaluators were three research assistants, who were undergraduate students, as well as, the principal investigator. The content evaluators completed the coding independently, in separate rooms and were instructed not to discuss their work with each other. Before beginning to code, the task of coding was explained to each contentevaluator and their understanding of the questionnaire were examined. The principal investigator went over the questionnaire with each content evaluator and has asked the content evaluators whether they understand the questions in the questionnaire and whether they understand how to complete the questionnaire. Following training of the content evaluators, the content evaluators were assigned to code all articles from the sample. The content evaluators were given the same articles to evaluate and in the same order. After reading and independently analyzing each article assigned to him or her from the sample, each content evaluator filled out a questionnaire. The questionnaire required the Content Evaluator to (a) identify the date of the article; (b) identify the article type (news-reporting, feature, column, commentary, letter to the editor); (c) identify whether the article primarily discusses merchant debtors or consumer debtors; (d) assess the disposition of the article towards the bankrupt or the bankruptcy population. To ascertain whether an article displays favorable as compared to unfavorable attitude towards the bankrupt or the bankruptcy population, the Content Evaluators were asked to examine the following: (a) whether any of the following key words have been attributed to the bankrupt or the bankruptcy population- moral, truthful, pure, responsible, fair, victim, oppressed, thrift, suffering, hardworking, conscientious, struggle, facing hardship, perseverance, deserving support; or (b) whether the article attributes the bankruptcy filings to events beyond the control of the petitioners, or it attributes bankruptcy action to the action of a third party (i.e., creditors). Articles regarded as positive were so marked and received the numerical value of “three.” Similarly, to ascertain whether an article displays unfavorable as compared to favorable attitude towards the bankrupt or the bankruptcy population, the Content Evaluators were asked to examine the following: (a) whether any of the following key 20 words have been attributed to the bankrupt or the bankruptcy population- irresponsible, unfair, fraudulent, outcast, exploiter, abusers, misbehaving, immoral, neglectful, threatening community well being, immoral, lazy, dependent, freeloaders, deceiver; or (b) whether the article attributes the cause of bankruptcy to lack of debtor‟s responsibility or other poor characteristics. Articles regarded as negative were so marked and received the numerical value of “one.” Articles having both favorable and unfavorable inferences about the bankrupt or the bankruptcy population, or no inferences at all were deemed neutral and given a score of “two”. The Content Evaluators were required to provide a written explanation for the basis of their assessments. The content evaluators‟ numerical assessments were averaged for each examined article. An average was then computed for all articles in a given year. The annualized average score for the years between 1864 and 2002 was recorded on an excel spreadsheet and subjected to data mining. This research design has some limitations. Primarily, the messages communicated in newspaper articles in general and in the New York Times in specific do not precisely reflect broad populace attitudes. Instead, this research design uses the embedded messages as a proxy for broad and evolving societal perception about the bankruptcy population. B. The Results Portrayal of bankruptcy petitioners in the New York Times newspaper articles has dramatically shifted in the 1960s. Prior to the 1960s, newspaper articles depicted the debtors largely as manipulators and fraud promoters. Debtors in bankruptcy were represented as a manifestation of decline of societal moral values and were frequently referred to as evil doers, dishonest, cheaters, crooks, fools, or perjures. Similarly, the newspaper articles prior to the 1960s commonly attributed bankruptcy filing to the debtor‟s transgression. Bankruptcy filings were usually attributed to the debtor‟s fraudulent conduct, such as concealment of assets.103 In contrast, beginning in the 1960s, the bankruptcy petitioners were no longer regularly referred to as deceitful. Instead, the newspaper articles have begun referring to the petitioners merely as irresponsible or unethical individuals who lack discipline.104 Aside from transforming the discourse on bankruptcy petitioners from See e.g., After the Frauds Among Bankrupts, N.Y. TIMES, Nov. 4, 1923 (referring to an increase in fraudulent bankruptcies as ―evil‖ and as ―commercial lawlessness‖); Judge Hough on Bankruptcy Frauds, N.Y. TIMES, Jan. 17, 1912, at 14 (referring to bankrupts as army of swindlers); The Bankruptcy Inquiry, N.Y. TIMES, June 12, 1881(asserting that debtors in bankruptcy cheat their creditors); Competing with Fraud, N.Y. TIMES, May 10, 1878 (referring to petitioners as evils and declaring that bankruptcy filing is a product of fraud committed by petitioners and amounts to a manifestation of shrinking values); Fraudulent Failures, N.Y. TIMES, April 23, 1878, at 1 (referring to bankruptcy filings as ―fraudulent failures‖ and suggesting that bankruptcy law promotes fraud); The Bankruptcy Act, N.Y. TIMES, Feb. 29, 1868, at 1 (emphasizing a bankruptcy amendment provision that refers to debtor‘s fraud and deceit) 104 See e.g., David J. Morrow, Key to a Cozier Bankruptcy: Location, Location, Location, N.Y. TIMES, Jan. 7, 1998, at A1(―More bankruptcy filings, critics say, have translated into more abuses‖); Saul Hansell, Battle Emerging on How to Revise Bankruptcy Law, N.Y. TIMES, Oct. 19, 1996, at A-1 (referring to petitioners as deadbeats); Clint Willis, Your Money: Caution Advised on Bankruptcy, N.Y. TIMES, Mar. 12, 1988, at A-38 (―Some employers assume that a bankruptcy filing indicates that a person is irresponsible or untrustworthy.‖); id. (declaring that extravagant spending leads to more bankruptcies); Michael deCourcy Hinds, Are Changes Needed in Bankruptcy Laws? N.Y. TIMES, May 31, 1982, at B-1 (―Today, it is fashionable for these debtors to take straight bankruptcy not as a matter of need but out of convenience.‖). 103 21 intentionally corrupt to simply rash and immature, the conversation has also incorporated sympathetic undertones. For the first time, petitioners were depicted in newspaper articles using compassionate sentiments. Petitioners were referred to as hardworking, poor, struggling, and needy.105 Visuals that were used along an article on bankruptcy commonly incorporated pictures of the poor, the disabled, the petitioners holding babies, the unsophisticated blue collar worker, along with the professionals.106 Unlike the past where bankruptcy was viewed in the newspaper articles as quasi criminal, it was now perceived and referred to as a matter of basic civil liberties and consumer rights.107 Moreover, beginning in the 1960s, newspaper articles have discontinued attributing bankruptcy filings to debtors‟ fraud. Instead, bankruptcy filings have begun to be viewed largely as a product of events beyond the control of the petitioners. Newspaper articles frequently pointed to economic conditions that have promoted the debtors‟ bankruptcy filings, such as recession, high inflation, unemployment, stock market losses, a decline in housing prices, an increase in foreclosures, or an increase in overall personal debt.108 In the alternative, the articles commonly attributed bankruptcy filings to personal misfortune, such as auto accident, illness, divorce, high medical bills, and other unforeseen hardships.109 Lastly, articles have also begun to ascribe bankruptcy filings to See e.g., Martin Fisher, Better Bankruptcy, N.Y. TIMES, Oct. 26, 1997, at IV.14 (―Most bankruptcy cases are filed by ordinary middle-class people who are employed and contribute to society.‖); Tamar Lewin, Lively Debate on Bankruptcy, N.Y. TIMES, Aug. 9, 1983 (―it would be wrong to deny a fresh start to poor people who have gotten into debt.‖); William Robbins, Why 5 People Found Themselves in Bankruptcy, N.Y. TIMES, Oct. 2, 1982, at C-1 (providing accounts of petitioners who are hard working and honest but failed due to reasons beyond their control); William E. Geist, Rising Bankruptcies in Suburbia, N.Y. TIMES, Mar. 30, 1982, at II.2 (―The people filing for bankruptcy now are decent, hard-working people, not phonies. They just wanted to live the American Dream and now find it costs too much.‖). 106 See e.g., Peter Kilborn, Mired in Debt and Seeking a Path Out, N.Y. TIMES, Apr. 1, 2001, at I.1 (including a picture of petitioners holding their grandson. The petitioners were described as an unemployed disabled couple); William Robbins, Why 5 People Found Themselves in Bankruptcy, N.Y. TIMES, Oct. 2, 1982, at C-1 (portraying petitioners in a positive light using pictures of three petitioners all of whom are serious, thoughtful and dressed respectfully) 107 See e.g., Bankruptcy Debate, N.Y. TIMES, May 16, 1983, at IV.2 (indicating that pro-debtor bankruptcy groups include consumer rights group, civil rights groups and labor unions); Robert A. Wright, Personal Bankruptcies are Rising, N.Y. TIMES, May 9, 1971, at III.3 (―[bankruptcy] gives them a fresh start… Otherwise, their problems would drive them to drink, narcotics, or suicide. Bankruptcy is a very human course.‖). 108 See Nick Ravo, Personal Bankruptcies Mounting With the Trepidation Lessening, N.Y. TIMES, Jan. 21, 1991, at B4 (attributing bankruptcy to business failure, loss of job, mounting household debt, declining home equity, ailing economy, and unemployment); Clint Willis, Your Money: Caution Advised on Bankruptcy, N.Y. TIMES, Mar. 12, 1988, at A-38 (―circumstances like prolonged illness or job loss also account for many bankruptcies.‖); id. (―people who are sued for repayment of debt or who face imminent foreclosure on their home may have little alternative but to file for bankruptcy.‖); Michael deCourcy Hinds, Are Changes Needed in Bankruptcy Laws? N.Y. TIMES, May 31, 1982, at B-1(suggesting that rising bankruptcy filings are a product of depressed economy and unemployment). 109 See e.g., Peter Kilborn, Mired in Debt and Seeking a Path Out, N.Y. TIMES, Apr. 1, 2001, at I.1 (―But many of the Americans who go bankrupt have only hard luck to blame.‖); Legislation to Overhaul Laws on Bankruptcy Dies as President Fails to Sign it, N.Y. TIMES, Dec. 20, 2000, at A.32 (attributing bankruptcy filings to ―unforeseen hardships‖ among other things); Saul Hansell, Personal Bankruptcies Surging as Economy Hums, N.Y. TIMES, Aug. 25, 1996, at A-1 (attributing bankruptcy filings to serious illness, divorce, and medical bills, among other things). 105 22 the fault of third parties, such as government‟s failure to provide adequate safety net,110 lawyers‟ increased bankruptcy advertising,111 and creditors‟ reckless lending practices.112 In addition to a more favorable depiction of the debtor and a more sympathetic view of the cause of bankruptcy filing, newspaper articles have also reflected a more favorable disposition towards the operations of the bankruptcy system. Articles have begun referring to the bankruptcy system as a system of “legal protection,”113 as the “federal fresh start program,”114 as a wise financial strategy,115 or as an informal and easy process to deal with temporary setbacks.116 The shift in the depiction of bankruptcy petitioners beginning in the 1960s was also statistically confirmed. The hypothesis was that societal attitudes regarding bankruptcy petitioners have begun to change in the late 1960s as a product of the cultural revolution in the United States at that time.117 To validate this hypothesis, the ratings for the newspaper articles from the New York Times for the years of 1864 through 1969 were compared with the mean annual ratings for articles from 1970 through 2002 using ttest. The mean rating from before 1970 was 1.768. The mean rating on or after 1970 was more favorable at 2.165. This change is significant at an alpha at .001. Hence, the data suggests that the attitudes of the American people about bankruptcy petitioners has changed following the 1960s and has become more sympathetic towards the bankruptcy petitioners. The ratings of the newspaper articles were also examined relative to other independent variables including the years between 1864 and 2002, gross domestic See e.g., Hansell, supra note 109, at A-1 (attributing bankruptcy filings to lack of safety net, among other things). 111 See Robert Bennett, Who Pays for Bankruptcies, N.Y. TIMES, June 3, 1983, at D-2 (Congressman attributing increase in bankruptcy filings to a Supreme Court ruling allowing lawyers to advertise). 112 See e.g., Philip Shenon, Senators Adopt Tougher Rules on Bankruptcy, N.Y. TIMES, at A-1(―The bill‘s critics say that credit card companies and other lenders are themselves largely to blame for the explosion in bankruptcyspecifically, that their mass solicitations for high-interest credit cards and other loans have encouraged irresponsible spending that has landed borrowers in bankruptcy court.‖); Stephen Labaton, House Votes to Make it Tougher to Escape Debt Through Personal Bankruptcy, N.Y. TIMES, at A-28 (reporting that ―the record number of personal bankruptcies was as much a result of the easy extension of credit.‖); Hansell, supra note 109, at A1(describing practices of credit card companies of giving higher credit to people they previously shunned and suggesting the lenders may be most responsible for bankruptcy growing appeal by showering Americans with unsolicited credit cards); Robert Bennett, Who Pays for Bankruptcies, N.Y. TIMES, June 3, 1983, at D-2 (―the problem [of rising bankruptcies] is not the bankruptcy law itself but profligate lending by banks and finance companies.‖). 113 See New Bankruptcy Law: Creditors, Debtors Aided, N.Y. TIMES, Oct. 19, 1979, at D-1 (concluding that bankruptcy reform provides ―protection‖ for petitioners). 114 See Robert Hershey Jr., Creditors Lead Push to Curb Bankruptcy, N.Y. TIMES, May 10, 1998, at III.10(asserting that proposed bankruptcy legislation ―constitutes an assault on the long-established principle that society needs a mechanism to give the hopelessly indebted a fresh start.‖); Nick Ravo, Personal Bankruptcies Mounting With the Trepidation Lessening, N.Y. TIMES, Jan. 21, 1991, AT B4 (―Bankruptcy has a bad name,‖ Mr. Carron, the Westport lawyer, said. ―What it really is is the Federal Fresh Start program.‖). 115 See e.g., Hansell, supra note 109, at A-1 (―Bankruptcy often looks like a good deal.‖). 116 See e.g., David J. Morrow, Key to a Cozier Bankruptcy: Location, Location, Location, N.Y. TIMES, Jan. 7, 1998, at A1(―Some lawmakers contend that declaring personal bankruptcy is now too easy…‖); Hansell, supra note 109, at A-1 (describing informality and ease of the bankruptcy process); Personal Bankruptcy: Creditors, Debtors & Ethics, N.Y. TIMES, Oct. 12, 1975, at III.16 (suggesting that bankruptcy is an easy process) 117 See generally, ROGER KIMBALL, THE LONG MARCH: HOW THE CULTURAL REVOLUTION OF THE 1960S CHANGED AMERICA (2000). 110 23 product, unemployment rate, the number of bankruptcy filings, available consumer credit, change in gross domestic product, change in unemployment rates, change in the number of bankruptcy filings, change in available consumer credit, party affiliation of the President, party affiliation of the majority in the House of Representatives and the party affiliation of the majority in the United States Senate. Using simple, multiple, and stepwise regressions, the results identified no other strong and significant statistical relation between the variables.118 VI. THE REASONS FOR THE DECLINE IN BANKRUPTCY STIGMA A. Introduction Bankruptcy stigma has declined in potency beginning in the late 1960s as reflected in changes to societal attitudes towards bankrupts. These changes in society‟s perceptions are perhaps reflection of evolving norms in society towards personal bankruptcy filings shifting from a more unreceptive to one that is more tolerant. This newly emerging norm on personal bankruptcy is perhaps a product of shifting societal attribution of fault for financial failure. Societal attribution of fault for financial failure has evolved from a perception that fault for financial failure rests primarily with the individual filer to a perception that personal financial demise is largely a product of events beyond the control of the individual filer. This transformation of fault perception had plausibly reduced the negative affective reactions towards the bankrupt, and hence diminished the related stigma. These initial changes in perceptions in the 1960s, triggered by the evolving attribution of fault for financial failure, were brought about or further reinforced by a number of norm entrepreneurs, including the government, the media and the local bankruptcy bar. Aside from evolving norms, bankruptcy stigma has possibly declined as a result of weakened norm enforcement mechanism. Generally, norms are enforced because of internalized sense of duty or because of a fear of external non-legal sanctions, or both.119 Recently, both guilt internalization and external non-legal sanctions have declined. Guilt internalization has lost much of its force partly due to weakened trust relationships in the credit market and partly due to considerable increase in the public awareness about bankruptcy filings by the public. Also, fear of external non-legal sanctions has lost its vitality in bankruptcy. This lost vigor is due to the decline in shaming and ostracizing sanctions applied against the bankrupts, as well as, the decline in available enforcement mechanism as reflected in waning community cohesiveness. The next section will discuss the causes for the evolution in norms in personal bankruptcy in the United States. A discussion of the decline in norm enforcement mechanism will follow. The only other statistically significant relationship was identified using a simple regression between mean annual ratings and the unemployment rate. The relationship was significant at about .02. The r-square was low, however. Hence the relationship was weak but significant. Interestingly, the relationship was negative. That is, the higher the unemployment rate the more negative the view of the bankruptcy petitioners in society. 119 See Christine Horne, Sociological Perspective on the Emergence of Social Norms, in SOCIAL NORMS 3, 4-5 (Michael Hechter & Karl-Dieter Opp, eds., 2001); Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 MICH. L. REV. 338, 340 (1997). 118 24 B. Evolution of Norms in Personal Bankruptcy 1. Attribution Theory and the Evolving Norms in Bankruptcy Norms about personal bankruptcy have evolved most notably beginning in the 1960s because of the shift in societal attribution of fault for financial failure. This shift was a product of a growing tendency in society beginning in the 1960s to generally shift blame for individual failure away from the person and towards environmental factors. Furthermore, this shift in societal attribution of fault for financial failure stemmed from a rise in favorable disposition towards consumerism and debt undertaking. The decline in bankruptcy stigma beginning in the late 1960s is perhaps a reflection of evolving norms in society towards personal bankruptcy filings shifting from a more unreceptive to one that is more tolerant. As mentioned earlier, stigma can be defined as a devalued characteristic of a person that is deviant or contrary to norm of a social unit.120 Social norms can be defined as nonlegal rules or obligations, about which there is at least some degree of consensus, that certain individuals feel compelled to follow without the force of law.121 The evolving norms in personal bankruptcy may have been prompted by society‟s changing perceptions about individual‟s conduct relative to financial distress. That is, the traditional consensus in society that bankruptcy filing, in light of financial difficulties, was not an acceptable behavior has experienced a significant challenge beginning in the 1960s. In the absence of the traditional consensus in society that financially troubled individuals should forebear at all costs from filing for bankruptcy, the act of filing bankruptcy was no longer viewed as deviant or contrary to norm of our social unit as it was perceived in the past. No longer being viewed contrary to societal norms as in the past, the stigma associated with bankruptcy has begun to decline. This newly emerging norm on personal bankruptcy is perhaps a product of shifting societal attribution of fault for financial failure. According to attribution theory, societal attitude towards ones failure is a product of the perceived cause of that failure.122 Perceived cause gives rise to variety of affects. For example, if the cause of the failure is perceived by society to be the result of the person‟s lack of efforts or will (i.e., controllable stigma), then society would develop a negative affects towards the individual (i.e., anger, punishment, neglect, incomprehension). In contrast, if the cause of the failure is perceived by society to be the result of lack of aptitude or externally imposed challenges (i.e., uncontrollable stigma), then society would develop a more positive affects towards the individual (i.e., pity, no anger, sympathy).123 Prior research has See PAGE, supra note 69, at 1 (―In the final analysis, stigma might best be considered to be the negative perceptions and behaviors of so-called normal people to all individuals who are different from themselves.‖)(citing other source); SHOHAM, supra note 69, at 15 (―An individual who differs in his personality or behaviour, or is considered different in a way that infringes the group‘s normative system, is liable to be stigmatized as being deviant. . . ―);Stafford & Scott, supra note 69, at 80. 121 See Ann E. Carlson, Recycling Norms, 89 CAL. L. REV. 1231, 1238-39 (2001); Horne, supra note 119, at 5. 122 See Weiner, et al., supra note 76, at 739. 123 See id. A recent study on bankruptcy filings among farmers in Canada made similar observations regarding the connection between stigma and fault attribution. See Cameron R. Harder, The Shame of Farm Bankruptcy: 120 25 suggested that the categorization of controllable stigma and uncontrollable stigma is not fixed. Instead, perceptions of most controllable stigmas can be altered in the direction of uncontrollability, which produces more positive affective reactions.124 2. The Rise of the Notion of Personal Fulfillment and the Repudiation of Personal Responsibility has Shifted Attribution of Fault for Bankruptcy Filing Away from the Petitioner. Plausibly, beginning in the late 1960s, societal attribution of fault for financial failure and bankruptcy has evolved from a perception that fault for financial failure rests primarily with the individual filer to a perception that personal financial demise is largely a product of events beyond the control of the individual filer. This observation is consistent with other literature suggesting that beginning in 1960s there has been an unleash of explosion of claims of entitlements, which emphasized personal fulfillment and liberation and repudiated personal responsibility.125 The explosion of rights and entitlements is alleged to have been accompanied by a corresponding plunge in personal responsibility, which is then manifested in the tendency to shift blame away from one‟s personal faults and to look for external causes to blame.126 As discussed earlier, traditionally, the public in the United States viewed bankruptcy filing as an indication of fraud, deceit and moral depravity.127 This negative perception toward the bankrupts could be considered a product of the perceived cause of the bankruptcy filing. Traditionally, bankruptcy filing was viewed as onset controllable since the bankruptcy filing was viewed largely as an intentional conduct that the individual controlled and should have been able to prevent. As onset-controllable behaviors are generally viewed with little sympathy by the public, bankruptcy filings were associated with much resentment and disgust. However, overtime the cause of bankruptcy filing (i.e., financial distress) had been perceived not to be the product of the individual‟s own conduct, but rather due to events beyond his control. Starting in the 1960s newspaper articles have begun for the first time to discuss bankruptcy filings in the context of events beyond the control of the petitioners. The newspaper articles frequently pointed to economic and personal conditions beyond the control of the petitioners that have promoted the debtors‟ bankruptcy filings (i.e., recession, high inflation, unemployment, stock market losses, a decline in housing prices, an increase in foreclosures, or an increase in overall personal A Sociological & Theological Investigation of Its Effect on Rural Communities, 18 & 160 (1999) (unpublished Ph.D. dissertation, University of St. Michael‘s College) (on file with author) (among farmers in Canada, shame is prevalent with bankruptcy as the public perceives that it was the debtor‘s own fault that led him to this predicament). 124 See id. at 745-46. 125 See Linda C. McClain, Rights & Irresponsibility, 43 DUKE L.J. 989, 1018(1994) (―for the communitarians, the 1960s were a Pandora Box because that decade unleashed a dangerous explosion of claims of entitlements, an ideology of personal fulfillment and liberation, and a pervasive challenge to traditional morality and all forms of traditional authority. Such a challenge undermined the solidarity, security, and strong family values that held sway in the 1950s and repudiated a traditional morality that emphasized self-control, self-restraint, and selfdiscipline.‖). 126 See id. 127 See supra note 100. 26 debt, auto accident, illness, divorce, high medical bills, and other unforeseen hardships).128 In addition, articles have similarly begun to shift fault of bankruptcy filings from the petitioners to certain third parties, such as government‟s failure to provide adequate safety net, lawyers‟ increased bankruptcy advertising, and creditors‟ reckless lending practices.129 Arguably, since the traditionally onset-controllable stigmas associated with bankruptcy had been altered in the direction of uncontrollability, the change had reduced the negative affective reactions towards bankruptcy petitioners, and hence less stigma. 3. Rise in Favorable Disposition Towards Consumerism and Debt Undertaking has Shifted Attribution of Fault for Bankruptcy Filing Away from the Petitioner Aside from beginning to attribute bankruptcy filings to external factors, the evolving norms in personal bankruptcy may have been prompted by society‟s changing perceptions about consumerism and debt undertaking. This changing perception about the role of consumerism and debt undertaking in society has further brought about a shift in attribution of fault for bankruptcy filing away from the petitioner.130 Traditionally, thriftiness was widely endorsed and followed by Americans.131 Borrowing and spending money for consumption purposes was reviled in traditional American society.132 This distaste towards personal debt undertaking was a product of a combination of robust Church influence and prevailing belief that to succeed government is dependent on self-restraint of its people. 133 Since use of personal credit was perceived unsympathetically, bankruptcy filing arising out of failure to honor one‟s promise to pay a See supra notes 105-06. See supra notes 107-09. 130 See Robert C. Ellickson, The Evolution of Social Norms: A Perspective from the Legal Academy, in SOCIAL NORMS 35, 49 (Michael Hechter and Karl-Dieter Opp, eds., 2001) (indicating that changing circumstances, such as new economic conditions, can trigger a change in norms). 131 See ROBERT D. MANNING, CREDIT CARD NATION: THE CONSEQUENCES OF AMERICA‘S ADDITION TO CREDIT 33-34 (2000) (describing the pervasiveness of thriftiness in American history); TUCKER, supra note 80, at viii (―The United States was born in a thrift culture which continued its dominance for more than a century, a culture insisting on frugality as the best means for promoting the general welfare.‖) 132 See MANN, supra note 44, at 56 (describing deep-rooted antipathy among Americans in the 18th century towards consumer debt undertaking); TUCKER, supra note 80, at 9-10 (strong sentiments against debt undertaking in the early days of the American tradition were displayed in a book written in 1757 by Benjamin Franklin where he referred to debt as the number one vice.‖); Lloyd Klein, Going for Broke: The Socio-Legal System and the Conceptual Delineation of Consumer Bankruptcy 15 (Aug. 1995) (unpublished paper presented at the annual conference of the Society for the Study of Social Problems) (suggesting that until 1920s, consumer debt was viewed with disapproval by most Americans); Rolf Nugent, Why Wage Earners Go Bankrupt, AM BANKERS ASS‘N J., July, 1931, at 9, 11(1931) (indicating that during the 19th century, debt was viewed as a shameful thing and that Americans feared debts); Sullivan, supra note 92, at 4 (― A fear of credit was well established among many Americans even before the Great Depression had begun. . . . [A]n aversion to private debt was usually considered a sign of character.‖). 133 See TUCKER, supra note 80, at 13 (―The American republic emerged amidst feverish declarations of frugality, thrift, and public virtue. Popular histories of classical republics insisted that this form of government survived only as long as citizens practiced self-restraining virtues. ‖); id., at 18 (―The new Protestant temperament thrived in the North American colonies, where Puritan emphasis on self-mastery built an effective conscience- a superego- that channeled human drives into religion, work, and saving.‖). 128 129 27 debt was viewed with even greater antagonism.134 Hence, individuals who had experienced financial trouble arising out of over-indebtedness for personal consumption were not favorably regarded as the cause of the failure was perceived by society to be the result of the person‟s own malfeasance, namely reckless and immature handling of one financial affairs.135 Beginning in the 1920s and continuing in earnest in the 1960s, society has begun to embrace consumerism and has learned to accept and even relish debt undertaking for personal consumption.136 Following World War I, credit undertaking has become more available in America. By the end of World War II, American attitudes towards credit have begun to change as consumer credit has become widespread.137 By the 1960s, debt accumulation for purposes of material acquisition was well entrenched in American society.138 Correspondingly, the virtue of thrift has begun eroding in the 1920s and has ended by the 1960s, mirroring the dramatic decline in savings among American families during that time.139 This rampant growth in American consumerism was in part the result of aggressive campaign by the retail industry emphasizing through advertising the See Sullivan, supra note 92, at 4 (―Because the use of credit was viewed with ambivalence, bankruptcy was viewed with even greater ambivalence.‖). 135 For example, during floor debate on bankruptcy legislation in 1910, one Congressman strongly criticized any legislation that forgives petitioners for undertaking debts for consumption purposes. See 45 CONG. REC. 2,272 (1910) (―Mr. Speaker, I can not refrain from calling attention to the fact that there is all over this country complaint against bankruptcy law by the retail merchants, because some dishonest people make it a practice to go into debt to these merchants for the necessaries of life and then seek the bankruptcy courts to get relief from the payment of such debts. . . We ought to go back to the old-fashioned primitive doctrine that requires the payment of all honest debts. . . ―). Similarly, in 1908, the National Association of Credit Men proposed amending the federal bankruptcy law to exclude persons with debts of under $300 from voluntary filings. This amendment was proposed since ―in certain parts of the country, debtors owing but small sums, and these largely for the necessaries of life, have often applied for bankruptcy to escape such debts.‖ Proposed Amendments to the National Bankruptcy Act, 5 L. & COM. 525, 526 (1908). 136 See Klein, supra note 132, at 16 (suggesting that beginning in the 1920s, consumption society was emerging in the United States, with its emphasis on spending and material possessions, thereby undermining traditional values of thrift); id at 15 (―There was a time when consumer debt was viewed with disapproval by most people. Social attitudes changed when middle and working class families, since the 1920s, relied upon relatively high installment credit payments…‖); id. at 19 (―The emergent consumer society featured a culture dependent upon increased consumption. Debt becomes an important mainstay in both the consumer culture and everyday economic activity.‖); Lloyd Klein, Consumer Credit and the Institutionalization of Consumerism 15 (1993) (unpublished Ph.D. dissertation, City University of New York) (on file with author) (reporting that ―consumer credit use spread at a phenomenal rates [in the United States] in the period between 1920 and 1967.‖). 137 See ); MANNING, supra note 131, at 38 (describing the social acceptability during the 1950s and 1960s of incurring higher levels of debts); Klein, supra note 136, at 15 (stating that following World War II, debt was no longer considered a social stigma). 138 See Klein, supra note 132, at 4; id at 7 (―consumer credit use spread at a phenomenal rate in the period between 1920 and 1967.‖). 139 See TUCKER, supra note 80, at viii (―Americans responded to the general culture [of thrift] by saving about 15 percent of their income. In the twentieth century, after consumption gained control of the culture and promoted spending as best for the common good, the personal savings rate dropped by half.‖); id. at ii (―Americans‘ long-running affair with the virtue of thrift apparently ended in the affluent 1950s, when we killed the concept . . . . By then, the theory and practice of thrift had been in decay for at least a generation. Advertising, consumer credit, and self-indulgent psychology had been eroding the practice since the 1920s. .. By the 1960s, even the public schools had dropped the teaching of frugality and thrift.‖). 134 28 importance of fulfilling one‟s desires rather than needs.140 Concurrently, consumerism was manifested by increased demand for household durable goods and by the corresponding increase in supply of goods through mass production.141 Along with the rise in consumerism during that time, the credit industry was instrumental in transformation norms regarding debt undertaking. The credit industry enabled this norm transformation through the active marketing and distribution of consumer credit to the masses.142 By the 1960s, American attitudes towards debt undertaking have radically evolved as hard work and thriftiness were set aside for spending and borrowing. This attitude change has transformed debt in the 1960s from a stigma to a status symbol.143 As a result, attitudes towards financially troubled individual, who have undertaken debt for consumption purposes, have become more sympathetic and understanding. This change of perception may have been the product of evolving societal attribution of fault for financial distress and bankruptcy. It shifted from a perception that fault for financial failure rests primarily with the individual filer, who unwisely borrowed money to finance expenditures rather than save (i.e., controllable stigma), to a perception that personal financial downfall is largely a product of events now considered beyond the control of the individual filer, such as the necessity of accumulating debt for consumption purposes (i.e., uncontrollable stigma).144 4. Norm Entrepreneurs have Prompted a Change in Societal Norms Towards Personal Bankruptcy Filings The changing perceptions beginning most notably in the 1960s were triggered by evolving attribution of fault for financial failure. However, these evolving perceptions were brought about or further reinforced by a number of norm entrepreneurs. See DANIEL HOROWITZ, THE MORALITY OF SPENDING: ATTITUDES TOWARD THE CONSUMER SOCIETY IN AMERICA 134-35 (1985); LEWIS MANDELL, THE CREDIT CARD INDUSTRY: A HISTORY 16 (1990) (describing the increase in demand for household durable goods following World War I). 141 See Klein, supra note 132, at 4 (concluding that consumption grew in the 1920s partly because technology advancements permitted mass production leading to less expensive products) 142 See MANNING, supra note 131, at 64 (―As corporate marketing campaigns shifted Americans‘ attention from their needs to desires, banks began reinforcing this attitudinal change by offering unrestricted or ―all purpose‖ consumer credit cards rather than asset-specific installment loans… This enabled Americans to satisfy their consumption goals by augmenting their declining wages with grater levels of consumer debt.‖); id. at 293 (―the institutionalist perspective emphasizes the role of the banking industry and its sophisticated mass marketing machinery . . . in transforming traditional attitudes toward debt in order to promote greater levels of consumption. . . ―);TUCKER, supra note 80, at 115-121 (suggesting that advertising by the credit and retail industry, among other things, prompted the decline of the culture of self-restraint); Klein, supra note 132, at 6 (―Marketing strategy [of credit card companies] created during a 1960s consumer demand emphasized ‗buy now, pay later‘‖). 143 See SULLIVAN, supra note 12, at 103; American Debtor- He Gets the Credit, NEWSWEEK, Jan. 8, 1962, at 54 (―Time has wiped away the Puritan connotation of immorality in debt and godliness in thrift… Debt has been transformed from stigma to status symbol, from a last resort of people in need, to an entrée to the good, material things in life.‖). 144 Others made similar observations. See Klein, supra note 136, at 6 (―The rise of consumer debt and a transformation in social attitudes toward debt are major elements in the development of new social definitions surrounding bankruptcy status.‖); Personal Bankruptcy & Consumer Credit Crisis: Hearing on S105-89 Before the Subcommittee on Administrative Oversight and the Courts Senate Judiciary Comm., 105th Cong. ___ (April 11, 1997) (statement of the American Bankruptcy Institute) (asserting that the recent change in perception towards debt may have prompted a change in attitude toward bankruptcy in general). 140 29 Norm entrepreneurs are individuals or organizations who promote and campaign to change particular norms.145 In the bankruptcy context, the federal government, the media and the bankruptcy attorneys have consciously or unconsciously acted as norm entrepreneurs to promote new societal perceptions about personal bankruptcy. a. The Federal Government has Served as a Norm Entrepreneur in the Area of Personal Bankruptcy by Enacting the 1978 Bankruptcy Legislation Legislation has an expressive function.146 Lawmakers regularly enact laws to express social values they attach to certain behavior.147 By applying this expressive function of legislation, legislators act as norm entrepreneurs.148 Legal reform may simply formally signal a change in social norms that has already taken place. In the alternative, legal reform may have the effect of shaping social norms.149 For example, legislation may validate the social meaning of an act, thereby making it more socially acceptable and perhaps even prompting the erosion of well-established social norms.150 A recent study about bankruptcy in Japan provides an illustration of the influence that legislative reform has had in mitigating the entrenched traditional social stigma of bankruptcy in Japan.151 Congressional bankruptcy enactment in 1978 may have similarly played a role in altering social norms regarding personal bankruptcy in the United States.152 In that year, legislators have adopted a major reform of personal bankruptcy laws that has incorporated several key provisions setting in motion a new image of bankruptcy petitioners in the United States. This new image fostered ambivalence rather than disdain See HOWARD S. BECKER, OUTSIDERS: STUDIES IN THE SOCIOLOGY OF DEVIANCE 147-48 (1963); Richard A. Posner, The Problematics of Moral and Legal Theory, 111 HARV. L. REV. 1637, 1664-68 (1998); Cass R. Sunstein, Social Norms and Social Roles, 96 COLUM. L. REV. 903, 909 (1996). 146 See Toni M. Massaro, Show (Some) Emotions, in PASSIONS OF LAW 80, 82 (Susan A. Bardes, ed., 1999) (―Of course, that law has such expressive aims and may alter social meaning is hardly a new concept.‖); Robert Weisberg, Norms and Criminal Law, and the Norms of Criminal Law Scholarship, 93 J. CRIM. L & CRIMINOLOGY 467, 476 (2003) (―when lawmakers make law, they do not just aim to directly control behavior … they also hope to express certain social or cultural values they attach to that behavior.‖). 147 For example, during the 1990s many states have adopted legislations with aim of stigmatizing sex offenders. See Eric Rasmusen, Stigma and Self-Fulfilling Expectations of Criminality, 39 J. L. & ECON. 519, 538 (1996). 148 See Ellickson, supra note 130, at 59-61 (describing the government as a norm entrepreneur). 149 See Massaro, supra note 146, at 81(―the criminal law scholars argue that criminal law can alter the social meaning of criminal behaviors (e.g., from ‗acceptable‘ to ‗unacceptable‘)‖). 150 See Richard H. McAdams, Cooperation and Conflict: The Economics of Group Status Production and Race Discrimination, 108 HARV. L. REV. 1003, 1065-85 (1995) (discussing how the passage of the Civil Rights Act of 1964 facilitated the erosion of the social norm that kept white business owners from serving or hiring blacks for fear of social stigma, since white business owners who now hired or served blacks could be doing so because the discrimination was illegal); Cass R. Sunstein, On the Expressive Function of Law, 144 U.L. REV. 2021, 2031 (1996) (―What is perhaps less standard is to see the law as an effort to produce adequate social norms. The law might either do the work of such norms, or instead be designed to work directly against existing norms and to push them in new directions.‖). 151 See Mark D. West, Dying to Get out of Debt: Consumer Insolvency Law and Suicide in Japan 5 (2003) (unpublished manuscript University of Michigan‘s John M. Olin Center for Law & Economics Working Paper Series Number 03-015) (on file with author) (―My data suggests a causal relation between insolvency law and suicide in Japan. . . [T]he data … show that law plays a role both in controlling debt and in mitigating the social stigma of indebtedness.‖). 152 See Zywicki, supra note 90, at 90. 145 30 towards the bankruptcy petitioners. It cultivated a portrayal of bankruptcy petitioners that sent messages of normalcy and deemphasized deviancy. One of the key legislative reform provisions in the 1978 reform bill disallows discrimination against individuals on the basis of prior bankruptcy filings in employment.153 By prohibiting discrimination based on prior bankruptcy filing, the legislation signaled that an individual‟s prior bankruptcy records should not be negatively viewed. Instead, the mere act of bankruptcy filing should be regarded as irrelevant in making employment decisions. By marginalizing the importance of the bankruptcy act, the legislators have sent a message that bankruptcy filings are normal and should not be treated as deviant. Further, the 1978 bankruptcy legislation signaled a new and more receptive attitude towards bankruptcy petitioners by enhancing bankruptcy related protections and benefits to the petitioners.154 The enhanced protections and benefits centered primarily on expansion of property exemptions entitlements and on broadening the discharge provisions.155 Furthermore, the new law continued to be uninterested in the debtor‟s pre-petition conduct, including the debtor‟s lack of responsibility.156 Since the debtor‟s lack of responsibility continued not to be considered in granting the debtor a relief, the debtor‟s pre-petition fault leading to his bankruptcy filing remained legally irrelevant. By continuing to separate fault considerations from the bankruptcy process, the legislators signaled their desire to have society regard bankruptcy filings less judgmentally. One of the most significant steps the legislators took in 1978 to alter norms regarding bankruptcy petitioners was through the symbolic act of labeling. Labeling has proven potently effective in affecting public perceptions of groups in society.157 Traditionally, contemptuous labeling of bankruptcy petitioners was used to reinforce negative stereotypes towards them.158 As mentioned earlier, in Italy, England and France bankrupts were historically commonly referred to as deceivers, frauds, cheaters and offenders.159 Likewise, the words used in Thai to refer to bankrupts literally 153 11 U.S.C. § 525 (1994) (prohibiting government and private employers from discriminating against individuals who have filed for bankruptcy protection. The provision also prohibits the government from discriminating against former petitioners in the grant of licenses). 154 See William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 AM. BANKR. L.J. 397, 399 (1994) (―The massive revision of the bankruptcy laws in 1978 may also have been important factor, because that revision considerably improved the extent of debt relief a typical consumer could obtain through bankruptcy.‖). 155 See Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 423 (1984) (referring to the federal exemption structure adopted under the 1978 legislation as ―generous.‖); Tabb, supra, note 29, at 36 (the 1978 bankruptcy reform retained the 1970 amendments which strongly enhanced the debtor‘s ability to protect and enforce the discharge provisions). 156 See Lynn M. LoPucki, Common Sense Consumer Bankruptcy, 71 AM. BANKR. L.J. 461, 462 (1997). 157 See surpa note 15 & accompanying text. 158 See Shuchman, supra note 64, at 413 (―Bankruptcy is often said to be a labeling process and to inflict a stigma upon the bankrupt.‖). 159 See supra notes 16-20 and accompanying text. 31 mean to fall down on your face and melt.160 Similar negative labeling of bankrupts was also traditionally used in the United States.161 Precisely because of the negative connotation of the term „bankruptcy‟,162 a number of countries have recently experimented with transforming societal norms regarding the bankrupt by re-labeling the bankruptcy process or the bankruptcy petitioners. For example, in France, Germany, Denmark, and the Netherlands the bankruptcy process was recently re-named as “debt settlement” to avoid the stigma that was traditionally associated with bankruptcy fillings.163 Similarly, recently in England, the government has attempted to de-stigmatize bankruptcy by adopting a new bankruptcy law titled “The Enterprise Bill.”164 Likewise, bankruptcy stigma has reportedly declined in Scotland following the legislators‟ re-labeling of “bankrupt” as “debtor” in the mid 1980s.165 In 1978, the United States Congress has undertook similar efforts to relabel bankruptcy petitioners. The new bankruptcy legislation replaced all references to the word “bankrupt” with the word “debtor.”166 By re-labeling the bankruptcy petitioners as mere “debtors,” Congress was signaling its desire to have society regard bankruptcy petitioners as no different than any other debt-owing individuals. By labeling the “bankrupt” as “debtor,” legislators took symbolic, yet significant, steps to purge the bad connotation of the bankruptcy status.167 The legislative enactment of 1978 has also affected bankruptcy related societal norms by minimizing the pain associated with the bankruptcy process168 and by limiting public confrontation of the petitioners. Public exposure of the bankrupt used to See George M. Kelakos, ABI in the “Land of Smiles”: A Report on Joint ABI/Thai Educational Projects, AM. BANKR. INST. J. 4 fn.5 (March 2000). 161 See supra note 138-47. 162 See FLETCHER, supra note 19, at 33 (―In everyday usage, the terms ―bankruptcy‖ and ―bankrupt‖ carry heavy connotations of personal disaster accompanied by social stigma …‖); Nick Hulls, Overindebtedness and Overlegalization: Consumer Bankruptcy as a Field for Alternative Dispute Resolution, 20 J. CONSUMER POL. 143, 144 (1997) (―The term bankruptcy has stigmatic connotation as it puts the blame on the debtor.‖); 163 See Hulls, supra note 162, at 150. 164 See Personal Finance-Bankrupts Get Chance to Start Again, BIRMINGHAM POST, Nov. 9, 2002, at 28 (noting government‘s attempt to reduce stigma attached to bankruptcy through new Enterprise Bill). 165 See Bill McBryde, The Scottish Experience of Bankruptcy in INSOLVENCY LAW THEORY & PRACTICE 117, 123 (Harry Rajak, ed., 1993). 166 See H.R. Con. Rep. 595, 95th Cong. (1997) (―Paragraph (12) defines ―debtor.‖ . . . This is a change in terminology from present law, which calls a person that is proceeding in a straight bankruptcy liquidation case the ―bankrupt‖ . . . The general term debtor is used … as a means of reducing the stigma connected with the term bankrupt.‖). 167 See Bankruptcy Reform Act of 1978: Hearings Before the Subcomm. On Courts of the Senate Comm. On the Judiciary, 97th Cong., 1st Sess. 40-42 (1981) (testimony of Professor Jonathan Landers) (contending that the 1978 Bankruptcy Act reduced the stigma associated with filing for bankruptcy by changing the name of filers from ‗bankrupts‘ to ‗debtors.‘); Jones & Zywicki, supra note 85, at 219 (noting that replacing the term bankrupt with debtor in the Bankruptcy Code contributed to the loss of stigma associated with bankruptcy). 168 See VISA, CONSUMER BANKRUPTCY: ANNUAL BANKRUPTCY DEBTOR SURVEY 28 (1997) (―66.4 percent, slightly more than last year, said the process itself was an easy one once they decided to file.‖); VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 15 (1997) (―There was nearly unanimous agreement that bankruptcy proceedings were too easy. Filing took almost no time, few questions were asked, almost no creditors appeared, and the process did not seem to have any serious consequences.‖): Kopecki, supra note 86, at A1 (quoting an attorney as follows: ―[a]fter clients have filed, they were amazed at how easy it was or how painless it was. I think it‘s too easy, and I‘m a debtors‘ lawyer.‖). 160 32 be an integral part of the bankruptcy process. For example, public exposure of the bankrupt was a requirement in pre-modern France to preserve the shame of the bankruptcy filing.169 More contemporarily, public exposure in the United Kingdom is facilitated by petitioners having to stand in a witness box in a front of a judge while being scrutinized about their financial affairs.170 In Scotland, some have observed a decline in bankruptcy stigma after public exposure of petitioners was no longer a requirement of the bankruptcy process.171 Similar to Scotland, petitioners in the United States face limited public exposure and report that the paperwork associated with filing is negligible and the actual public conformation is minimal. Some have reported spending as little as forty minutes preparing the filing paperwork and appearing at a creditors‟ meeting for less than five minutes.172 Although it is called a meeting of the creditors, it is uncommon for creditors to show up and rare for creditors to challenge a bankruptcy case.173 Most petitioners do not find the creditors meeting to be embarrassing or intimidating.174 Further, the vast majority of personal bankruptcy cases in the United States are now processed completely at the relatively unceremonious United States Trustee‟s Office and outside the formal courtroom.175 The 1978 bankruptcy legislative provisions of prohibiting discrimination, expanding relief, eliminating negative labels, and reducing public confrontation, may have played a role in cultivating a more positive portrayal of bankruptcy petitioners and deemphasizing any deviancy associated with the act of bankruptcy filing. b. The Media has Served as a Norm Entrepreneur in the Area of Personal Bankruptcy by Providing Social Validation of Bankruptcy Filing The media has contributed in part towards the evolving norms relating to personal bankruptcy in the United States. The shift in society‟s perception beginning in See Whitman, supra note 4, at 1875 (to reinforce public conformation and humiliation of the bankruptcy petitioner, in 1490, French law mandated that petitioners appear before a judge and ―bare-headed and with their clothing handing open [to expose their naked bodies] to mark and augment their infamy.‖). 170 See Douglass G. Boshkoff, Limited, Conditional, and Suspended Discharges in Anglo-American Bankruptcy Proceedings, 131 U. PA. L. REV. 69, 79 fn.52 & 81(1982). 171 See McBryde, supra note 165, at 123. 172 See Kopecki, supra note 86, at A1. 173 See id.. 174 See VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 15 (1997) (―A majority of respondents commented on the large number of people in bankruptcy court, a factor many said made their court experience less traumatic.‖); Thorne, supra note 92, at 118-121 (finding that the majority of bankruptcy petitioners believe the 341 hearing was too easy and were not embarrassed by it). 175 See Consumer Debt: Hearing Before the Committee on Banking and Financial Services of the House of Representatives, 104th Cong. 385 (Sept. 12, 1996) (statement of the American Bankruptcy Institute) (―In most no-asset Chapter 7 liquidation cases -- the vast majority of consumer cases – the debtor will never see a judge, is rarely examined by creditors and may never even set foot in a court before the case concludes with a permanent forgiveness of debts.‖); See Kopecki, supra note 86, at A1. (―About 70 percent of all national personal bankruptcy cases are processed outside the courtroom and never come before a judge. … Bankruptcy trustees often process dozens of debtors at a time, closing some cases in less than a minute.‖). 169 33 the 1960s that viewed personal bankruptcy with more tolerance and normalcy was prompted by the public becoming increasingly aware, though media coverage, of the prevalence and the ease of bankruptcy filings among the masses and the celebrities. Media‟s coverage of the rapid rise in the number of personal bankruptcy filings among ordinary citizens, in general, and the prevalence of filings among the celebrities, in particular, has transformed the media to a norm entrepreneur in the field of personal bankruptcy. Norms can be formed by people observing other people‟s behavior in a given situation.176 Observing others provides information about what is acceptable or normal behavior, particularly in ambiguous situations.177 When the appropriate conduct is unclear, people tend to rely on “social reality” as reflected by the conduct of others.178 The more people respond similarly to the same situation, the more appropriate other people will perceive the conduct to be and the more normative it becomes.179 People use the actions of similar others as a standard of comparison to evaluate the correctness of their own actions. The media assists people in obtaining information about what is common behavior and hence what is normal. There is a general agreement among media researchers that the media has an indirect but powerful role in influencing people‟s perceptions.180 Beginning in the 1960s, the media has begun reporting with more frequency about the increased number of bankruptcy filings. By reporting the widespread nature in bankruptcy filings, the media has contributed to the shaping of pubic perception that bankruptcy filing is a common behavior and hence an acceptable norm.181 The media further cultivated the perception that bankruptcy filings are becoming part of the norm by its recurring coverage of bankruptcy filings by celebrities.182 Researchers have found that social stigma associated with particular behavior may be lifted following favorable media coverage of individuals engaged in the traditionally See Christine Horne, Sex & Sanctioning: Evaluating Two Theories of Norm Emergence, in SOCIAL NORMS, 305, 306 (Michael Hechter & Karl-Dieter Opp eds., 2001) (―actions that are common become normative. Norms therefore reflect existing behavior.‖). 177 See Daniel T. Gilbert, Attribution and Interpersonal Perception, in ADVANCED SOCIAL PSYCHOLOGY, 99 (A. Tesser, ed., 1995). 178 See Leon Festinger, A Theory of Social Comparison Processes, 7 HUMAN RELATIONS 117 (1954). 179 See JOHN W. THIABAUT & HAROLD H. KELLEY, THE SOCIAL PSYCHOLOGY OF GROUPS (1959); Horne, supra note 176, at 306 (―Whatever the reason for the initial action, when many people engage in the same behavior, that behavior comes to be associated with a sense of oughtness. Thus patterns of action emerge that then become normative.‖); Karl-Dieter Opp, The Evolutionary Emergence of Norms, 21 BRITISH J. SOC. PSYCH. 139 (1982). 180 See Edward Donerstein, Mass Media, in THE BLACKWELL ENCYCLOPEDIA OF SOCIAL PSYCHOLOGY 370, 372-74 (Antony S.R. Manstead & Miles Hewstone eds., 1995). 181 As one bankruptcy petitioner put it: ―When I found out- this was watching it on the news, on the newspapers- that more and more people are doing it [filing bankruptcy], and … it‘s just a middle class you know, upper class too –rich people- everybody‘s doing it. And . . . I said: Why not me? You know, I‘m just one more of them.‖ See Your Money with John Metaxas (CNNfn television broadcast, Jan. 18, 1999); See also Daniel Patrick Moynihan, Defining Deviancy Down, 62 AM. SCHOLAR 17, 19 (1993) (observing that there is a natural tendency in society to define deviancy down where behavior previously defined as deviant becomes widespred). 182 See MANNING, supra note 131, at 134 (summarizing the media‘s facisination with reporting bankruptcy filings of various celebrities); Tyson Filing for Bankruptcy, MIAMI HERALD 17 (Aug. 3, 2003). 176 34 stigmatized behavior, particularly when the individual is a celebrity.183 By providing high publicity of leading figures and well known celebrities‟ bankruptcy filings,184 the media has prompted the public to re-evaluate the act of bankruptcy filing and it has made the traditional bankruptcy stigma less pronounced.185 Lastly, the media, at times, has gone even a step further in shaping public‟s perception in regard to personal bankruptcy filings by suggesting that people should not feel bad about pursuing this recourse. Beginning in the late 1960s, the New York Times, for example, has begun depicting bankruptcy filers using compassionate sentiments. Petitioners were referred to as hardworking, poor, struggling, and needy.186 Visuals that were used along articles on bankruptcy commonly incorporated pictures of the poor, the disabled, the petitioners holding babies, the unsophisticated blue collar worker, along with the professionals.187 Unlike the past where bankruptcy was viewed in the newspaper articles as quasi criminal, it was now perceived and referred to as a matter of basic civil See David P. Phillips, Recent Advances in Suicidology: The Study of Imitative Suicides, in SUICIDES AND ITS PREVENTION: THE ROLE OF ATTITUDE AND IMITATION, 299 (R.F.W. Diekstra, et al., eds., 1989) (finding that social stigma associated with suicide is diminished following media coverage that suggests to people that rather than being punished, the deceased is accorded attention and status, not conferred in life); S. Stack, A Reanalysis of the Impact of Non-Celebrity Suicides, 25 SOC. PSYCHIATRY & PSYCHIATRIC EPIDEMIOLOGY 269 (1990) (finding increases in suicides following front-page suicide stories in the news, particularly following celebrity suicides). 184 See MANNING, supra note 131, at 133-34 (referring to a magazine‘s cover story highlighting the bankruptcy filings of several pop icons, including singer M.C. Hammer, Kim Basinger, Burt Reynolds, Lorraine Bracco and Willie Nelson); Kim Clark, First: Why So Many Americans are Going Bankrupt, 136(3) FORTUNE 24 (Aug. 4, 1997) (referring to the bankruptcy filing of the rock and roll legend Jerry Lee Lewis); Christine Dugas, In Real Life, No One Comes to Rescue You from Your Debt, USA TODAY E5 (Aug. 11, 1996) (referring to the bankruptcy filing of Arizona Governor, Fife Symington and Dallas fashion designer Victor Costa); Hansell, supra note 109, at A-1 (a former petitioner explains how her decision to file for bankruptcy was made easier when she saw on television reports on celebrities and prominent companies filing for bankruptcy); Joshua W. Shenk, Bankrupt Policy, NEW REPUBLIC, May 18, 1998, at 16 (noting that Toni Braxton, Kim Basinger, Burt Reynolds, and M.C. Hammer have all filed bankruptcy thereby able to ―fend off creditors while continuing to live in luxury.‖); Ward, supra note 89, at 17 (―And who can forget former commissioner of Major League Baseball Bowie Kuhn ignominiously slinking off to Florida to file for bankruptcy?‖) 185 See AS WE FORGIVE OUR DEBTORS, supra note 85, at 337 (―It may be that the social stigma of bankruptcy has declined in recent years, in part because of the bankruptcies of so many famous corporations and prominent individuals. . . Although it surely remains true that bankruptcy is not a badge of honor, these examples [of bankruptcy filings by celebrities] may help legitimize a bankruptcy filing for a family that sees itself in hopeless financial trouble.‖); Philip S. Corwin, Bankruptcy Commission’s Report will Soon Face Congressional Review, 15 BANKING POL‘Y REP. 1, 14 (1997) (―There is general agreement that the societal stigma of declaring bankruptcy, while still present, has significantly receded as a deterrent. This may be due in part ot both substantial publicity about bankruptcy filings by celebrities . . . ―); Zywicki, supra note 102, at 61 (―Although the direct impact of this [media coverage of bankruptcy filings by celebrities] is hard to measure empirically, it certainly contributes to public awareness of bankruptcy and increases the social acceptance of bankruptcy general.‖). But see McIntyre, supra note 7, at 138 (―Arguably, increases in bankruptcies of businesses and famous people would have very little impact on whether or not most people would regard bankruptcy as stigmatizing. The average American does not, I think, consider either businesses or famous people to be salient references against which to evaluate his or her own conduct.‖). 186 See supra note at 105. 187 See supra note at 106. 183 35 liberties and consumer rights.188 Similarly, newly emerging self-help books have reinforced the message that people should not feel guilty about bankruptcy filing.189 c. Attorneys have Served as Norm Entrepreneurs in the Area of Personal Bankruptcy by Exercising their Informational Influence Over the Public‟s Perception of Bankruptcy In addition to the government and the media, attorneys have also acted as norm entrepreneurs in the area of personal bankruptcy. Using their information influence through the use of advertising, bankruptcy attorneys have aided in transforming how the public views bankruptcy filings. Informational influence occurs when a group of people accepts information from others as valid evidence of reality.190 Information influence generally succeed in cases where people are attempting to solve a complex problem unfamiliar to them and individuals that are considered more knowledgeable provide such information to them.191 Attorneys, who are considered by the public as more knowledgeable in the field of personal bankruptcy, have successfully exercised their informational influence over the public beginning in the late 1970s.192 The vehicle used by the attorneys to exercise this informational influence over the public was a sustained advertising campaign.193 In 1977, the United States Supreme Court has struck down on first amendment grounds state laws banning advertising by attorneys.194 Following this landmark decision, advertising by attorneys, in general, and bankruptcy attorneys, in particular, has grown at a phenomenal rate.195 Furthermore, the liberalized bankruptcy enactment of 1978 has made bankruptcy a monetarily rewarding specialty practice leading See supra note at 107. See e.g., ROBIN LEONARD, BANKRUPTCY: IS IT THE RIGHT SOLUTION TO YOUR DEBT PROBLEM? 7 (1998) (suggesting that people considering to file bankruptcy should not feel guilty since creditors expect bankruptcies and treat them as a cost of doing business). 190 See H. ANDREW MICHENER & JOHN D. DELAMATER, SOCIAL PSYCHOLOGY 326 (4th ed. 1999). 191 See Martin F. Kaplan & Charles E. Miller, Group Decision Making & Normative Versus Informational Influence: Effects of Type of Issue and Assigned Decision Rule, 53 J. PERSONALITY & SOC. PSYCH. 306 (1987). 192 See generally Ellickson, supra note 130, at 44 (contending that to become successful, the norm entrepreneur, who campaign to change a particular norm, must ―possess a relatively high level of technical knowledge relevant to the norms with his specialty‖). 193 See generally Braucher, supra note 68, at 543-545 (describing in detail the advertising practices of bankruptcy attorneys). 194 See Bates v. State Bar of Arizona, 433 U.S. 350 (1977) (having found no economic or professional justification for the total ban on attorney advertising, the Supreme Court held that the Arizona State Bar‘s regulations prohibiting attorney advertising was unjustified and violated the first amendment). 195 See Hearing Before the Comm. On Banking and Financial Services House of Representatives, 104-74 Congr. Rec. at 60 (1996) (statement by Ford Elsaesser from the American Bankruptcy Institute) (suggesting that approximately 70 percent of paid advertising in some local papers in Virginia and Maryland are for bankruptcy services);Terry Calvani et al., Attorney Advertising and Competition at the Bar, 41 VAND. L. REV. 761 (1988); Jones & Zywicki, supra note 85, at 212 (―Daytime and late-night television, as well as newspapers, magazines, and telephone books are now awash in bankruptcy advertising by lawyers.‖); Pomykala, supra note 48 (―After the Supreme Court ruled in 1977 that state laws banning [advertising] violated free speech rights, legal advertising quickly grew from $5,000,000 in TV ads in 1980 to $129,000,000 in 1994.‖). 188 189 36 many new attorneys to enter the field and compete by aggressively advertising their services to the public.196 Beginning in the late 1970s, advertising has become a vital and a pervasive source of information to individuals about bankruptcy.197 This new and ever increasing advertising not only familiarized the public about the bankruptcy option, but also sent a not so veiled message that bankruptcy is normal and should no longer be considered deviant.198 The positive image portrayed in their advertising was consistent with the attorneys‟ financial interests of promoting a high volume bankruptcy practice enabling routinization and profit maximization.199 The terminology used by the advertising reinforced that message. Some advertisements referred to bankruptcy as “debt relief” that can be used to cure credit card and foreclosure problems.200 Through their advertising beginning in the late 1970s, the bankruptcy attorneys have successfully exercised their informational influence over the public and have contributed to the norm evolution in regard to personal bankruptcy.201 3. The Decline in Norm Enforcement Mechanisms has Reduced the Influence of Traditional Societal Norms in Regard to Personal Bankruptcy a. Introduction Bankruptcy stigma may have declined over the past decades because of evolving social norms, but also because of a decline in the potency of traditional norm enforcement mechanism. For norms to have an impact they must be enforced.202 Norms are generally enforced either through internalization or through external sanctions. See AS WE FORGIVE OUR DEBTORS, surpa note 85, at 336 (identifying a number of reasons for the dramatic increase in the number of bankruptcy attorneys in the 1980 including; ―The publicity surrounding the adoption of the new [Bankruptcy] Code and the subsequent continuing legal education programs to train lawyers to use it made bankruptcy very visible to a number of lawyers who had never thought much about it before. At the same time, the law schools graduated a lot of hungry young lawyers, and old established law firms changed longstanding policies of ―not doing‖ bankruptcy.‖); Whitford, supra note 154, at 400 (―The tremendous growth in consumer bankruptcy filing rates has both facilitated and been facilitated by the development in many communities of lawyers specializing in representing debtors in consumer bankruptcy cases.‖). 197 See VISA, CONSUMER BANKRUPTCY: BANKRUPTCY DEBTOR SURVEY 11 (1996) (finding that 22 percent of surveyed petitioners said that they learned about bankruptcy from newspaper and television advertising). 198 See Charles A. Luckett, Personal Bankruptcies, FEDERAL RESERVE BULLETIN (Sept. 1998) (arguing that advertising by attorneys ―helps create a climate in which the declaration of bankruptcy is more readily seen as a legitimate response to financial distress.‖); Zachary Price, The Bankruptcy Abuse Prevention and Consumer Protection Act, 39 HARV. J. LEGIS. 237, 245 (2002)(―lawyer advertisements for bankruptcy services may have contributed to a decline in social stigma by presenting bankruptcy filing in a more positive light.‖). 199 See Braucher, supra note 68, at 543 (suggesting that for a consumer bankruptcy practice to be profitable, attorneys heavily rely on advertising as a way of routinizing their practice). 200 See id. at 552 (describing a practice by some bankruptcy attorneys of avoiding the word ―bankruptcy‖ in their Yellow Pages advertising and use ―debt relief‖ instead); id. at 577 (describing the practice of a national marketing firm retained by law firms of avoiding the word ―bankruptcy‖ in their advertising and instead referring to chapter 13 ―a wage earner plan‖ and ―debt consolidation.‖). 201 See Ellis, supra note 95, at 2 (contending that bankruptcy advertising by attorneys may have reduced some of the stigma of bankruptcy by making it more part of the public consciousness); Sullivan, supra note 92, at 11(―just as credit advertising has convinced consumers that credit is legitimate, so lawyer advertising may be convincing consumers that bankruptcy is also legitimate.‖); William Vukowich, William T. Reforming the Bankruptcy Reform Act of 1978: An Alternative Approach, 71 GEO L. J. 1129, 1131 (1983)(suggesting that advertising has attenuated the stigma of bankruptcy). 196 37 Social norms are internalized when individuals apply sanctions to their own behavior and respond to these internally generated rewards or punishments.203 Internalization of social norms serves as a constraint to the conduct of a group member.204 A group member‟s conscience and guilt feelings may serve as a powerful weapon in controlling one‟s behavior consistent with existing social norms.205 In addition to the internalization of social norms, external sanctions may also serve as an enforcement mechanism.206 External sanctions to enforce violations of social norms may include shame and ostracism.207 Shame and ostracism can arise through formal and informal sanction mechanisms.208 Formal sanction mechanism generally arises through some kind of government action, such as the adoption of laws or practices that humiliate or ostracize the targets.209 Unlike formal government acts, informal sanction mechanisms arise through non-governmental societal acts, such as through gossips.210 While shaming is the fear carried by an individual that her deviance will evoke some respect or status loss among his friends or in the community as a whole,211 shunning involves the fear that her deviance will evoke her exclusion from fully participating in her community‟s activities.212 Traditionally, bankrupts have faced external sanctions from the 213 community. Contemporarily, external sanctions continue to be practiced with some rigor in some areas.214 However, in the bankruptcy context, formal external sanctions have been abandoned and informal external sanctions have become largely ineffective. Aside from a decline in the potency of both formal and informal external sanctions, norm See Horne, supra note 119, at (―Of course, for norms to exist, the group must have the ability to enforce its rules.‖). 203 Id., at 4; Robert Cooter, Do Good Laws Make Good Citizens? An Economic Analysis of Internalized Norms, 86 VA. L. REV. 1577, 1583 (2000) (a person internalizes a norm if she so values obedience to it that she will in obey the norm for its own sake, notwithstanding the advantages or disadvantages of the obedience). 204 See William K. Braithwaite , A Theory of Social Norms, 1994 U. ILL. L. REV. 545, 567. 205 See JOHN BRAITHWAITE, CRIME, SHAME AND REINTEGRATION 71 (1989); Ellickson, supra note 130, at 36 (―A person who has internalized a norm as a result of socialization enforces the norm against himself, perhaps by feeling guilt after violating it or a warm glow after complying with it.‖). 206 See Horne, supra note 119, at 4 (―Whereas some focus on internalization as an enforcement mechanism, the majority of scholars emphasize the role of external sanctions.‖). 207 See Sunstein, supra note 150, at 2029-2030. 208 See BRAITHWAITE, supra note 205, at 58 (providing examples of formal and informal enforcement sanctions). 209 Id. (shaming ―can be officially pronounced by a judge from the bench or by a government which names a wrongdoer in an official report or in the chamber of the legislature.‖). 210 See Sally E. Merry, Rethinking Gossip and Scandal, in REPUTATION: STUDIES IN THE VOLUNTARY ELICITATION OF GOOD CONDUCT 47,47 (Daniel B. Klein, ed. 1997) (―Anthropologists have long assumed that gossip and scandal serve as effective modes of informal social control.‖). 211 See CHARLES R. TITLE, SANCTIONS AND SOCIAL DEVIANCE: THE QUESTION OF DETERRENCE 198 (1980) (―it appears that to the extent that individuals are deterred from deviance by fear, the fear that is relevant is most likely to be that their deviance will evoke some respect or status loss among acquaintances or in the community as a whole.‖); David A. Skeel, Jr. Shaming in Corporate Law, 149 U. PA. L. REV. 1811, 1814 (2001)(defining shaming as ―the process by which citizens publicly and self-consciously draw attention to the bad dispositions or action of an offender, as a way of punishing him for having those dispositiosn or engaging in those actions.‖). 212 See Sunstein, supra note 150, at 2029-2030. 213 See supra notes 12-40 and accompanying text. 214 See Massaro, supra note 46, at 1882 (listing examples of shaming practices utilized in the criminal law context) 202 38 internalization has recently become less forceful in deterring individuals from filing for bankruptcy. b. Norm Enforcement has Declined Due to the Weakening of Bankruptcy Norm Internalization A number of recent studies have documented the continuing presence of strong internalized guilt as part of the decision making process of filing for bankruptcy. Two surveys by the credit card industry have found that the former bankruptcy petitioners overwhelmingly report that the decision to file for bankruptcy was not an easy one.215 Findings from focus groups research suggest that for some former bankruptcy petitioners bankruptcy filing carried a substantial personal sense of shame and embarrassment.216 These assessments were collaborated by consumer counseling groups, by lawyers representing bankruptcy petitioners, as well as, by other studies of bankruptcy petitioners.217 In the aggregate, these reports and studies suggest that internalized guilt continues to play a role in the decision-making process relating to bankruptcy filing, particularly among women.218 This sense of internalized guilt is manifested by some in communication breakdown with family members, in withdrawal from the community, in participating in support groups of bankruptcy petitioners, and, at times, in depression and suicide.219 Nonetheless, while some petitioners clearly report a heavy sense of shame arising out of the bankruptcy filing decision, there is some evidence indicating that this guilt internalization has been declining since the 1960s. A study from the 1960s found that almost a quarter of the petitioners felt ashamed about bankruptcy filing.220 When posed with a similar question in 1995, only ten percent of the surveyed petitioners indicated that they feel shame for filing for bankruptcy protection.221 See VISA, CONSUMER DEBTOR: ANNUAL BANKRUPTCY DEBTOR SURVEY 27 (1997) (finding that ―76.6 percent of the [bankruptcy petitioners] respondents said that the decision to file for bankruptcy was not an easy one.‖). 216 See VISA, QUALITATIVE RESEARCH: THE FINANCIAL CYCLE 14 (1998). 217 See AS WE FORGIVE OUR DEBTORS, surpa note 85, at 337 (―We do not doubt that moral conviction continues to play an important part in keeping many people out of bankruptcy.‖); Braucher, supra note 68, at 540 (describing former bankruptcy petitioners forming support groups to deal with feelings arising from the bankruptcy filing); id. (lawyers report that their clients are often ashamed of filing for bankruptcy protection); Life After Bankruptcy: Wave of Insolvencies Washing Away Stigma, THE HARTFORD COURANT (Feb. 7, 1998) at D1 (quoting a president of a consumer counseling group as follows: ―Most of our clients really do feel the obligation to pay off their bills.‖). 218 See Davis, supra note 64, at 235 (describing women‘s heavy guilt feelings associated with having to file for bankruptcy). 219 See Harder, supra note 123, at 34-35 (depression and suicide were reportedly associated with the guilt and shame of bankruptcy among the financially troubled farmers); id. at 17 &41 (the guilt feelings arising out of bankruptcy is manifested by the withdrawal of bankrupt from the community); id. at 31 (guilt feelings are manifested in communication breakdown with family members as the petitioner feels that he had failed to provide for his family); Braucher, supra note 68, at 540 (describing former bankruptcy petitioners forming support groups to deal with feelings arising from the bankruptcy filing). 220 See STANLEY & GIRTH, supra note 57, at 67-68. 221 See id.; Aahira K. Hira & Kyle L. Kostelecky, Pilot Study of Consumer Debtors Provides New Insight- What Influnces Debtors’ Attitudes?, 14 AM. BANKR. INST. J. 1, 36 (Apr. 1995). See also Saul Hensell, The Debt Trap: Personal Bankruptcies Surging as Economy Hums, NEW YORK TIMES (Aug. 25, 1996), at A.1 (attorneys and court officials 215 39 The apparent decline in guilt internalization relating to bankruptcy may be the result of a number of events that have unfolded over the past forty years or so. First, the perceptible descend in internalization of guilt may have been due to the decline of trust relationships in the credit market. Certain trust relationships between a debtor and a creditor play a role in the guilt internalization affecting the bankruptcy decision process.222 Trust between the parties evolves as the relationship between the debtor and the creditor develops.223 The first stage of the trust relationship is the deterrence-based trust. It arises when the debtor and the creditor do not know each other and as a result rely on the threat of punishment to be able to trust the previously unfamiliar party.224 As the parties are unfamiliar with each other, no emotions are involved in that relationship.225 A decision by any party to breach the level of trust in that relationship will be made largely out of rational assessment of the costs and benefits involved.226 Consequently, guilt internalization plays a minor role in the deterrence-based trust relationship as personal attachment considerations are not involved. A debtor and a creditor may sufficiently develop their relationship and progress it towards the knowledge-based trust relationship.227 Here, the personal relationship between the parties developed following repeated positive interaction, regular communication and courtship, creating a certain emotional bond between the parties.228 In this level of trust relationship, the parties are discouraged from violating the trust as one‟s internalized guilt deters the breach of trust. 229 Over the past forty years there has been a marked transformation in the debtorcreditor relationships from largely knowledge-based credit trust relationships towards interviewed for a newspaper article opined that petitioners display a surprisingly lack of shame about reneging on their financial obligations). 222 See Rafael Efrat, The Moral Appeal of Personal Bankruptcy, 20 WHITTIER L. REV. 141, 155 (1998). 223 See generally Roy J. Lewicki & Barbara Bunker, Trust in Relationships: A Model of Development and Decline, in CONFLICT, COOPERATION, AND JUSTICE 133 (Barbara B. Bunker & Jeffrey Z. Rubin eds., 1995). 224 See id. at 163. 225 See id. (―While [the parties in a deterrence-based relationship] may be disappointed, they will not feel deeply aggrieved if trust is broken.‖). 226 See Patricia M. Doney & Joseph P. Cannon, An Examination of the Nature of Trust in Buyer-Seller Relationships, 61 J. MARKETING 35, 37 (1997) (―To the extent that the benefits of cheating do not exceed the costs of being caught (factoring in the likelihood of being caught), one party infers that it would be contrary to the other party‘s best interest to cheat and therefore the party can be trusted.‖); Lewicki & Bunker, supra note 223, at 145 (―[Deterrence]-based trust in any given transaction with another may be derived by determining:[b]enefits to be derived from staying in the relationship; [b]enefits to be derived from cheating on the relationship; [c]osts of staying in the relationship; [c]ost of breaking the relationship.‖). 227 See Lewicki & Bunker, supra note 223, at 157. 228 See Doney & Cannon, supra note 226, at 37 (―Repeated interaction enables the party to interpret prior outcomes better, providing a basis for assessing predictability.‖); Lewicki & Bunker, supra note 223, at 150 (―accurate prediction requires an understanding that develops over repeated interactions in multidimensional relationships … plus two additional factors: regular communication and courtship…‖); Debra L. Shapiro, et al., Business on a Handshake, 8 NEGOTIATION J. 221, 225 (1992 (―repeated and multifaceted relationships, contribute to understanding and predictability. The more points of contact parties have, the better the chances are that they will come to understand and predict each other‘s behavior.‖). 229 See J. David Lewis & Andrew Weigert, Trust in Social Reality, 63 SOC. FORCES 967, 974 (1985) (―Personal trust involves an emotional bond between individuals, and the emotional pain that each would experience in the event of betrayal serves as the protective base of trust even where other types of short-term gains could be realized by breaking the trust.‖). 40 predominantly deterrence-based credit trust relationships.230 Traditionally, the credit relationships were based on intensely personal relationships between the debtor and the creditor. The parties to the credit relationship were familiar with each other through repeated credit transactions, as well as, regular communication and interactions. Lenders used to extend credit to borrowers primarily based on the borrower‟s personality and reputation.231 The establishment of personal bonding between the debtor and the creditor has evolved the relationship between the parties into the knowledge-based credit relationship. This knowledge-based credit trust relationship deterred many debtors from violating the trust relationship (i.e., defaulting on terms of the credit or filing for bankruptcy protection) out of strong internalized guilt feelings.232 In contrast, over the past forty years with the growth in urbanization, credit relationships have become primarily involving institutional lenders. The relationships with the institutional lenders have generally been characterized as one with limited personal interaction and minimal emotional bonding.233 Hence, over the past forty years, credit relationships have remained in the deterrence-based trust relationship, involving no significant emotional component, but have become primarily based on rational calculation of the costs and benefits. The lack of serious emotional attachment resulted in debtors progressively retaining a more limited internalized guilt in their decision on whether to violate the credit trust relationship and to file for bankruptcy.234 Some recent studies provide some empirical support for this hypothesis. For example, a recent VISA study found that while most petitioners felt guilty about not being able to pay their debt to their creditors, many had less guilt feelings about not paying large creditors or creditors they did not know personally.235 Aside from a decline in the knowledge-based credit trust relationships, internalized guilt may have also weakened as a result of an increase in individuals observing others in the general population file for bankruptcy protection.236 As debtors See Efrat, supra note 222, at 161. See MANN, supra note 44, at 7 (during the 18th century, debts in the United States were extended largely based on the personality or reputation of the debtor); Sullivan, supra note 92, at 10 fn.6 (―In the small towns and city neighborhoods of pre-World War II United States, unsecured credit remained uncommon, but when it was extended it was based at least in part on the character of the borrower and the psychology of the lender.‖). 232 See Efrat, supra note 222, at 159-161. 233 See Shuchman, supra note 64, at 429-30 (―As creditor-debtor relationships have become less personal (more form letters, automated and even computerized bookkeeping, and so forth), the elements of social and personal wrong in not paying one‘s debts have diminished …‖). 234 See AS WE FORGIVE OUR DEBTORS, surpa note 85, at 337 (―In today‘s credit market, most creditors arelikely to be large, impersonal corporations… Debtors may feel less compunction about stiffing ITT Financial than they would Mr. Herring. . . .‖); Shuchman, supra note 64, at 429 (―It may also be that, notwithstanding advertising efforts at personalizing large financial institutions, individual debtors of such businesses feel no internalized obligation in the sense that they might if they creditor was a natural person …‖). 235 See VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 9 (1997) (―Many [petitioners that were interviewed] felt less guilty about not paying large creditors or creditors they did not know personally. . . ―). 236 See Robert B. Cialdini, Social Motivations to Comply: Norms, Values, and Principles, in TAXPAYER COMPLIANCE 213-14 (Roth & Scholz, eds., 1989) (suggesting that people frequently decide how to behave by looking to the actions of other similarly situated people.‖); Joshua D. Rosenberg, The Psychology of Taxes: Why They Drive Us Crazy, and How We Can Make Them Sane, 16 VA. TAX. REV. 155, 200 n.113 (1996) (―[w]hen we sense something in the world that is inconsistent with the cognitive frame through which we see the world, we initially (unconsciously) ignore or distort our perception. If that becomes impossible, we eventually amend our cognitive frame (i.e., the way we see and understand the world) to incorporate our new perception.‖). 230 231 41 become more aware of bankruptcy filings by others in society, their internalized guilt for filing their own bankruptcy may decline.237 As the media over the recent past has publicized the sheer increase and numbers of consumer bankruptcies,238 debtors have become more aware of the prevalence of other people resorting to bankruptcy protection. This increased awareness may have led to a reduction in internalized guilt.239 In addition to the increase in general awareness of bankruptcy filings, internalized guilt may have particularly been weakened in recent past by the individuals‟ increased observations of family members and close friends file for bankruptcy protection.240 People are most influenced in their behavior by the expectations and behavior of family and friends.241 Some have detected an increase in the flow of informal advice from family and friends as more people go through bankruptcy.242 This increase is reflected in the large numbers of petitioners indicating that they have learned about bankruptcy as an option from their family and friends.243 In fact, some studies suggest that those who already knew someone who had filed for bankruptcy were more likely to consider bankruptcy themselves.244 Having known family members or friends who have gone through the bankruptcy process apparently reduces the discomfort and the guilt feelings associated with declaring bankruptcy.245 Lastly, internalized guilt may have declined in recent past as a result of See Jones & Zywicki, supra note 85, at 212 (―the sheer number of consumer bankruptcies has increased public awareness that bankruptcy is an available and relatively easy process.‖). 238 See supra notes 181 and accompanying text. 239 See Zywicki, supra note 90, at 90 (―The sheer number of filers alone has also probably helped to reduce the stigma associated with filing bankruptcy. As more individuals file bankruptcy, more people know others who have filed bankruptcy. The recognition that others have filed bankruptcy and have survived … makes bankruptcy more routine in society, reducing the stigma associated with it.‖). 240 See GALLUP ORGANIZATION, PUBLIC OPINION SURVEY (May 1997) (on file with author) (the national poll found that 39 percent of the respondents indicated that they have close friends or relatives who have filed for bankruptcy protection); LOUIS HARRIS & ASSOCIATES, PUBLIC OPINION SURVEY, STUDY NO. 921102 (Feb. 1992) (on file with author)(the national poll found that a third of the general population knows someone who had filed for bankruptcy protection). 241 See e.g., Martin Fishbein, Sexual Behavior and Propositional Control (Oct. 1966) (unpublished paper presented at the annual meeting of the Psychonomic Society Association in St. Louis, MO) (finding that undergraduate men‘s likelihood of engaging in premarital sexual activity was more heavily determined by the expectations of their families and closest friends than by their attitudes toward premarital sex). 242 See Braucher, supra note 68, at 545 (―Several [bankruptcy] lawyers noted that increasing client referrals result from the declining stigma attached to bankruptcy. The lawyers said that more and more people are telling relatives, friends, and co-workers about their bankruptcies.‖); David B. Gross & Nicholas S. Souleles, An Emprical Analysis of Personal Bankruptcy and Delinquency, 15 REV. FIN. STUD. 319, 321(2002) (pointing that the flow of informal advice from family and friends might have accelerated recently as more people have been through bankruptcy). 243 See VISA, CONSUMER BANKRUPTCY: ANNUAL BANKRUPTCY DEBTOR SURVEY 2 (1997) (―Fully 45.3 percent of the respondents said that they learned about bankruptcy as an option from friends or family.‖) 244 See HERBERT, supra note 57 (finding that debtors, who already knew someone that had filed for bankruptcy, were more likely themselves to consider bankruptcy filing). See also VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 19 (1997) (―For others the decision to file for bankruptcy was actually reinforced by friends and relatives. They reported knowing many other people, including relatives and close friends, who had filed for bankruptcy or had urged them to do so.‖). 245 See VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 11 (1997) (―Some on the other hand, felt no discomfort in declaring bankruptcy, having known many others who had gone through the same process.‖) 237 42 attorneys‟ influence. A number of studies have revealed the vital influence attorneys have over the decision making process of potential clients.246 One study has documented cases where potential clients have expressed hesitation and trepidation about declaring bankruptcy, but the attorneys have acted to neutralize those feelings of internalized guilt.247 c. Norm Enforcement has Declined Due to the Weakening of External Sanctions 1) The Manifestations of the Decline in External Norm Enforcement Sanctions in Bankruptcy Norm enforcement relating to bankruptcy may have declined not only as a result of a weakening internalized guilt sanction, but also as a result of weakening external sanctions. As observed earlier, the decline in shaming sanctions in bankruptcy has been manifested in the re-labeling of “bankrupt” as “debtor, in the broadening of relief in bankruptcy, and in the minimal public confrontation of the petitioner in bankruptcy.248 Similarly, as discussed earlier, the decline in ostracizing sanctions in bankruptcy has been manifested in the 1978 prohibition of discrimination against former bankruptcy petitioners,249 and in the pervasive attorneys advertising promoting the filing of bankruptcy petitions.250 Furthermore, over the past forty years, the ostracizing of former bankruptcy petitioners from access to credit has progressively eroded. In the past, bankruptcy filers were largely excluded from the credit market following their bankruptcy filing.251 However, beginning in the 1960s, denial of credit to former petitioners has substantially declined.252 The expansion of the consumer credit market along with the elimination of most debts under bankruptcy laws and the prohibition against obtaining another discharge for six years, provided lenders incentives to lend debtors who file for bankruptcy.253 Some studies report that many petitioners begin enjoying expansive access to credit almost See e.g., Braucher, supra note 68; William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 AM. BANKR. L.J. 397 (1994). 247 See Brauher, supra note , at 509 (―A number of lawyers in the study said that they find themselves trying to talk debtors out of [the desire to repay their debts in] chapter 13. They use such tactics as raising the question of their clients‘ moral obligations to their families, especially to their children, in order to diffuse clients‘ sense of moral obligation to repay creditors.‖). 248 See surpa notes 166, 168, 172-75 and accompanying text. 249 See surpa notes 153 and accompanying text. 250 See surpa notes 195 and accompanying text. 251 See Jones & Zywicki, supra note 85, at 213 (―In the past, a compelling disincentive to file bankruptcy lay in the unavailability of credit for those with impaired credit rating. Bankruptcy was an almost insurmountable hurdle to reestablishing one‘s credit.‖). 252 See SULLIVAN, supra note 12, at 104 (suggesting that unlike recent practice, lenders in the 1960s have begun extending credit to former petitioners). 253 See Braucher, supra note 68, at 537 (finding that lawyers inform their financially troubled clients that filing Chapter 7 may help them get new credit as some lenders are targeting newly discharged debtors); Jones & Zywicki, supra note 85, at 213 (―The disincentive to bankruptcy has, however, significantly declined in recent years due to the flourishing of the ―sub prime‖ lending market and the willingness of some lenders to look favorably on those who have wiped the slate clean of most other obligations through bankruptcy.‖). 246 43 immediately following the closing of their bankruptcy case, facing little excommunication from the credit industry.254 2) The Reasons for the Decline of External Norm Enforcement Sanctions in Bankruptcy There are a number of plausible reasons for the decline of external norm enforcement sanctions in bankruptcy. For society to successfully regulate an individual‟s behavior through the application of social norm sanctions (such as shaming and ostracizing), society must lack a robust sense of individualism and share strong sentiments of community cohesiveness. The less individualistic the society and the more cohesive the society, the stronger the impact of stigma will be on the individual's behavior. 255 Historically, the society in the United States was able to effectively enforce social norm sanctions upon any detected deviancy. However, over time, shaming and ostracizing type of norm sanctions lost much of their traditional potency. As individualism thrived and community cohesiveness declined in the United States, the external norm enforcement sanctions that were traditionally used to address deviancy were found less effective in many spheres of life, including bankruptcy. a. Individualism: Individualism is a function of the degree of the individual‟s dependence on society. The more dependent the individual is on society, the less individualistic she is.256 The number of groups there are in the relevant community and the level of affluence of the individuals determine the extent of the individual‟s independence. The more groups there are in society, the less dependent the individual is on any particular group and the See VISA, QUALITATIVE RESEARCH: THE FINANCIAL CYCLE 16 (1998) (―Bankruptcy does not mean an end to credit forever. A year after bankruptcy, consumers are able to get car loans, department store cards, and gas cards. After two years, they are able to get secured credit cards. And after three to five years, they can be approved for unsecured credit cards, mortgages, and credit at competitive rates.‖); VISA, QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 17 (1997) (finding that ―[n]early everybody had received at least some offers of credit since declaring bankruptcy, many of which were offers for secured cards.‖); Michael Staten, Impact of Post-Bankruptcy Credit on the Number of Personal Bankruptcies 10-11 (Credit Research Center, Krannert Graduate School of Management Working Paper No. 58, Purdue University 1993) (finding that over 16 percent of bankruptcy filers were able to gain unsecured credit within one year after filing bankruptcy and over 55 percent within five years.). 255 See Harry C. Triandis, The Self and Social Behavior in Differing Cultural Contexts, 96 PSYCH. REV. 506, 517 (1989) (―The more complex, individualistic, and loose the culture, the more likely it is that people will sample the private self and the less likely it is that they will sample the collective self. When people sample the collective self, they are more likely to be influenced by the norms, role definitions, and values of the particular collective, than when they do not sample the collective self.‖). 256 See id. at 513 (―[I]ndividualism means that the individual is not so attached to the ingroup that conformity to the ingroup is [not] always essential;‖). See also HARRY C. TRIANDIS, CULTURE & SOCIAL BEHAVIOR (1994) (arguing that collectivist cultures stress interdependence over independence: they are more concerned with attaining group goals and maintaining harmony than with individual success or achievement, and behavior is perceived to be more determined by cultural norms than by individual personality and attitudes); Merry, supra note 210, at 70 (―The impact of gossip and scandal is greater in social settings where the members of the local social system are more interdependent for economic aid, jobs, political protection, and social support.‖). 254 44 more likely the individual will be independent and individualistic.257 For example, individuals residing in large urban areas are less likely to find themselves dependent on any particular group and therefore are likely to be more individualistic as compared with their rural counter parts.258 The extent of one‟s independence (and hence individualism) is also determined by the level of one‟s affluence. The more affluent the individual is, the less dependent the individual will be on society for financial or emotional support, and the more individualistic the individual will be.259 The growth of individualism in the United States may have had an impact on the declining force of external norm enforcement sanctions. With the expansion of urbanization in the United States, people have become more independent, and less dependent on any particular group.260 Similarly, as individuals in the United States have become more affluent, they have become less dependent on society for financial or emotional support.261 The expansion of urbanization and the increase in affluence among Americans have led to people becoming more individualistic and hence less vulnerable to the force of external norm sanctions arising out of declaring bankruptcy. b. Community Cohesiveness: Not only Americans have become less vulnerable to the force of external norm sanctions, the forcefulness of these norm sanctions have dramatically declined overtime as a result of weakening cultural cohesiveness in the United States. The looser the cultural structure, the weaker society is in forcing the individual to conform and the lesser the fear that may arise from social response to deviancy.262 i) H o m o g See Triandis, supra note 255, at 510 (―The major antecedents of individualism appear to be cultural complexity. . . . The more complex the culture, the greater the number of ingroups that one may have, so that a person has the option of joining ingroups or even forming new ingroups.‖); id. at 513 (―When individuals have few ingroups, they are more dependent on them.‖) (emphasis in the original). 258 See id. at 510 (―Urban samples tend to be individualistic, and traditional-rural samples tend toward collectivism within the same culture.‖). 259 See id. at 510 (―The major antecedents of individualism appear to be . . . affluence. . . . Affluence means that the individual can be independent of ingress.‖); Massaro, supra note 46, at 1916 (asserting that because well off individuals are insulated by their wealth, they are mostly likely to be able to defy social norms and risk shaming sanctions). 260 See Massaro, supra note 46, at 1922 (suggesting that the pervasiveness of individualisms in the U.S. makes shaming sanctions difficult to enforce). 261 See James Garbarino, The Price of Privacy in the Social Dynamics of Child Abuse, 56 CHILD WELFARE 565 (1977) (argues that people in American society relinquish kinship and neighborhood bonds for the benefits of privacy as they become middle class). 262 See Triandis, surpa note 255, at 517 (―The more . . . loose the culture, the more likely it is that people will sample the private self and the less likely it is that they will sample the collective self. When people sample the collective self, they are more likely to be influenced by the norms, role definitions, and values of the particular collective, than when they do not sample the collective self.‖). See also BRAITHWAITE, supra note 205, at 8 (informal sanctions appear to work best within relatively bounded, close-knit communities, whose members ―don‘t mind their own business‖ and who rely on each other.‖). 257 45 e n e o u s n a t u r e o f s o c i e t y : The degree of looseness of society depends on whether the society is largely homogeneous or heterogeneous. To enforce social norms, there has to be a consensus in society regarding the norms.263 A consensus is more likely to develop in homogeneous societies. In a heterogeneous culture “it is more difficult for people to agree on specific norms and even more difficult to impose severe sanctions.”264 See Vernon L. Allen & John M. Levine, Social Support & Conformity: The Role of Independent Assessment of Reality, 7 J. EXPERIMENTAL SOC. PSYCH. 48 (1971)(finding that any breach in the majority consensus will reduce the pressure on the subject to conform); Horne, supra note 119, at 26 (concluding that characteristics of the group, such as cohesion, affects the likelihood of social sanctioning). 264 See Triandis, surpa note 255, at 511. See also id. at 510-11 (―When a society is relatively homogeneous, the norms and values of ingroups are similar. But heterogeneous societies have groups with dissimilar norms. If an ingroup member deviates from ingroup norm, ingroup members may have to make the painful decision of excluding that individual from the ingroup. . . . As a result, homogeneous cultures are often rigid in requiring that ingroup members behave according to the ingroup norms. Such cultures are tight. Heterogeneous cultures . . . are flexible in dealing with ingroup members who deviate from ingroup norms.‖) (emphasis in the original); Merry, supra note 210, at 48 (―The role of gossip in achieving social control in stable, bounded, morally homogeneous, and close-knit societies where escape and avoidance are difficult differs markedly from its function in large, fluid, open, and morally heterogeneous communities where escape and avoidance are realistic possibilities.‖). 263 46 The decline in the homogenous nature of American society has led to a decrease in community consensus and hence in society being able to effectively exert informal sanctions against bankruptcy filers.265 ii. C l o s e k n i t c o m m u n i t y : The degree of looseness is also a function of the close-knit nature of the communities. The more the community is intimate and small in size, the more likely it is to remain cohesive. Close-knit communities are conducive for the application of external norm sanctions because of higher likelihood of developing community consensus in such communities, higher likelihood dependency among people, lower cost of exchanging information and because of the high public visibility of a member‟s non-conforming conduct.266 Individuals, who are part of a smaller community (i.e., rural, or village type See AMITAI ETZIONI, THE SPIRIT OF COMMUNITY: RIGHTS, RESPONSIBILITIES, AND THE COMMUNITARIAN AGENDA 23-24 (1993) (arguing that beginning in the 1960s, the explosion of claims of entitlement has left the American society with a profound absence of moral consensus on shared values). 266 See ROBERT C. ELLICKSON, ORDER WITHOUT LAW 246-54 (1991) (contending that in larger, less tightly-knit groups, where members interact less frequently and information about their behavior is more costly to obtain and diffused, informal social sanctions typically must be supplemented by more formal institutions); id. at 18081 (arguing that close-knit environments are particularly conducive to the development of efficient social norms since members‘ dependence on each other makes them value their reputations and the cost of obtaining the exchanging information about members is low); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U.CHI. L. REV. 133, 141-42 (1996) (the greater the dependence of members on the group for obtaining various kinds of collective goods, the more effective is the threat of ostracism as a sanction for violating a norm of cooperation). 265 47 environment), are more likely to be detected when engaged in non-conforming conduct since their characteristics are more likely to be generally known in the community.267 External norm sanctions, such as shaming, used to play an important role in colonial America since the colonists lived in intimate and closely bound communities.268 Similar community bonds continued to provide social control of debt repayment in the United State in small towns and city neighborhoods of pre World War II.269 Shaming sanctions continues to be effective today in small rural communities in North America.270 However, by in large, America can no longer be considered a close-knit community.271 The decline of close-knit communities in the United States and the ensuing weakening community consensus, lowering dependency among people, increasing cost of exchanging information have all contributed to the decline in the vitality of external norm sanctions affecting bankruptcy filings in the United States. Furthermore, the increased anonymity of modern life in the United States,272 coupled with bankruptcy proceedings taking place largely in unfamiliar forums outside the community of the petitioners,273 have resulted in a dramatic decline in the bankruptcy petitioner‟s public visibility and detection. This weakening public visibility of bankruptcy petitioners made the exercise of external norm sanctions more difficult to enforce. iii. M o See GOFFMAN, supra note 70, at 99 (―By maintaining physical distance, the individual can also restrict the tendency of others to build up a personal identification of him. By residing in a region with a mobile population, he can limit the amount of continuous experience others have of him [thereby reducing the likelihood of facing stigma].‖); id. at 143 (―When the ‗system of reference‘ is further shifted from a face-to-face local community to the wider world of metropolitan settlements (and their affiliated areas, resort and residential), a corresponding shift is found in the variety and meaning of deviations.‖); D.J. Hessing, et al., Needy or Greedy? The Social Psychology of Individuals Who Fraudulently Claim Unemployment Benefits, 23 J. APPLIED SOC. PSYCH. 226, 228 (1993) (―norms will have an influence on behavior only if that behavior is public and visible.‖). 268 See LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 37-8 (1991) (shame sanctions were widespread in the U.S. during the colonial period); Massaro, supra note 46, at 1915 (―white colonists lived in intimate, closely bound, and normatively cohesive communities, within which shaming could and did play a signal role in reinforcing standards of behavior.‖). 269 See Sullivan, supra note 92, at 10 fn.6 (―In the small towns and city neighborhoods of pre-World War II United States, unsecured credit remained uncommon, but when it was extended it was based at least in part on the character of the borrower and the psychology of the lender. . . Personal and community bonds provided additional social control, over and above the force of laws, to assist the creditor in collecting the debt.‖). 270 See e.g., Harder, supra note 123, at 41 & 45-46 (describing the shame of bankruptcy in a Canadian farm community manifested by the community isolating and avoiding the bankrupt farmer); Timothy D. Moratzka, An Attorney Discusses Farm Bankruptcies, 14 FARM MONEY MGMT. 111 (1982) (―There is certainly a social stigma applied to bankruptcy. [Bankrupt farmers are] still going to have to go into the coffee shop and their friends may be looking at them and treating them somewhat differently than before.‖). 271 See Massaro, supra note 46, at 1917 (―Unlike the intimate face-to-face cultures that rely heavily on shaming, cities in the United States typically are not characterized by high interdependence among citizens, strong norm cohesiveness, or robust communitariansim.‖); Skeel, supra note 211, at 1811(―While American society may once have been characterized by close-knit communities, this seems far less true now.‖). 272 See Massaro, supra note 46, at 1903 (―shame requires a social encounter, an interaction between an individual and the group that exposes weaknesses or deficiencies in the individual. . . .‖); James Q. Whitman, What is Wrong with Inflicting Shame Sanctions? 107 YALE L.J. 1055, 1063 (1998) (referring to the anonymity of western city life). 273 See Lynn M. LoPucki, The Demographics of Bankruptcy Practice, 63 AM. BANKR. L.J. 289, 300 (1989) (―For three quarters of the population, bankruptcy is a proceeding which takes place in an unfamiliar forum outside their own community.‖) 267 48 b i l i t y : Lastly, the degree of looseness in society also depends on the ease of mobility. “Geographic mobility allows people to leave the offended communities in ways that are not available in more stable cultures.” 274 Thus, in cultures that make mobility possible, the looser social structure is, and the more difficult it is for social forces to impose social norms on individuals.275 As mobility in American society has become more widespread, the prospects of enforcing external norm sanctions against individuals that engage in non-conforming behavior have become more tenuous. Some researchers have presented some empirical data that tends to support the hypothesis that communities with higher mobility rate have less power to inflict shaming or ostracizing sanctions to deter individuals from declaring bankruptcy.276 CONCLUSION This study detected a noticeable shift in public attitudes beginning in the 1960s towards individuals filing personal bankruptcy. This study, however, did not find that the changing public perception necessarily prompted an increase in the bankruptcy filings. Nonetheless, other studies on bankruptcy stigma have found an increase in the probability of debtors filing for bankruptcy when level of bankruptcy stigma falls.277 This evolution of social norms towards the bankrupts is a reflection of broader social changes taking place in American society during the 20th century. People have apparently begun to view the bankruptcy phenomenon from a different set of lenses. The negative perception traditionally associated with bankrupts has significantly diminished beginning in the 1960s as people have begun to ascribe more sympathetic feelings towards the bankrupt. The sympathetic mind set was largely due to a shift in societal attribution of fault for financial failure. Traditionally, the financial failure of a person was attributed to the person‟s own controllable conduct. Beginning in earnest in the 1960s, the See Triandis, supra note 255, at 511. See id. at 511 (―Urban environments are more loose than rural environments, in which norms are clearer and sanctions can be imposed more easily.‖). See also Steven A. Lewis, et al., Expectation of Future Interaction & the Choice of Less Desirable Altrenatives in Conformity, 35 SOCIOMETRY 440 (1972) (the study demonstrated that members of a group are more likely to conform to the group norms when they anticipate that their relationship with the group will be permanent or enduring, as opposed to short-term); Sally E. Merry, Rethinking Gossip and Scandal, in 1 TOWARD A GENERAL THEORY OF SOCIAL CONTROL: FUNDAMENTALS 271, 282 & 286 (D. Black ed. 1984) (asserting that if an individual is dependent on the group or cannot leave the group easily, then a social sanction is likely to be particularly potent). 276 See Buckley & Brinig, supra note 93, at 204 (finding that the propensity to file bankruptcy rises in cities and other areas where populations tend to be more transient). 277 See Fay, Hurst and White, supra note 93, at 1. See also supra note 93. 274 275 VII. 49 financial demise of a person was being viewed more as a result of externally imposed challenges. Specifically, traditionally, financial failure was viewed largely as a product of the individual‟s own misbehavior or fraud. Beginning in the 1960s, prompted by the cultural revolution in the United States that emphasized personal fulfillment and largely rejected personal responsibility, financial failure was viewed more the result of external factors, such as recession, inflation, lack of welfare state and lender‟s conduct. Moreover, the evolving norms in personal bankruptcy may have been triggered by society‟s changing perceptions about consumerism and debt undertaking. As personal debt undertaking for purposes of consumption have become widely accepted behavior in society, financial failure resulting from incurring personal debt has become more tolerable as well. This changing perception about the role of consumerism and indebtedness in society has further brought about a shift in attribution for bankruptcy filing away from the petitioner. By shifting the attribution of fault away from the financially troubled individual, the American society has over time developed a more positive affects towards the individual manifested by less anger and more sympathy with the plight of the individual. The changing perceptions beginning most notably in the 1960s were set off by evolving attribution of fault for financial failure. However, these evolving perceptions were brought about or further reinforced by a number of norm entrepreneurs, including the federal government, the media and the local bankruptcy bar. Bankruptcy stigma may have declined over the past decades because of evolving social norms, but also because of a decline in the potency of traditional norm enforcement mechanisms. Traditionally, bankrupts have faced external sanctions from the community. Contemporarily, external sanctions continue to be practiced with some rigor in some areas. However, in the bankruptcy context, formal external sanctions have been abandoned and informal external sanctions have become largely ineffective. Aside from a decline in the potency of both formal and informal external sanctions, norm internalization has recently become less forceful in deterring individuals from filing for bankruptcy. The apparent decline in guilt internalization relating to bankruptcy may be the result of a number of events that have unfolded over the past forty years or so. First, the perceptible descend in internalization of guilt may have been due to the decline of trust relationships in the credit market. Aside from a decline in the knowledge-based credit trust relationships, internalized guilt may have also weakened as a result of an increase in individuals observing others in the general population file for bankruptcy protection. In addition to the increase in general awareness of bankruptcy filings, internalized guilt may have particularly been weakened in recent past by the individuals‟ increased observations of family members and close friends file for bankruptcy protection. Norm enforcement relating to bankruptcy may have declined not only as a result of a weakening internalized guilt sanction, but also as a result of weakening formal external sanctions. As observed earlier, the decline in shaming sanctions in bankruptcy has been manifested in the re-labeling of “bankrupt” as “debtor, in the broadening of relief in bankruptcy, and in the minimal public confrontation of the petitioner in bankruptcy. 50 Similarly, as discussed earlier, the decline in ostracizing sanctions in bankruptcy has been manifested in the 1978 prohibition of discrimination against former bankruptcy petitioners, and in the pervasive attorneys advertising promoting the filing of bankruptcy petitions. Lastly, over the past forty years, the ostracizing of former bankruptcy petitioners from access to credit has progressively eroded. In addition to a weakening of various formal external sanctions in bankruptcy, informal norm sanction have also eroded in recent past. Historically, the society in the United States was able to informally effectively enforce social norm sanctions upon any detected deviancy. However, over time, shaming and ostracizing type of norm sanctions lost much of their traditional informal potency. As individualism thrived and community cohesiveness declined in the United States, the informal external norm enforcement sanctions that were traditionally used to address deviancy were found less effective in many spheres of life, including bankruptcy. 51