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									         PERSONAL BANKRUPTCY
                                  RAFAEL EFRAT*

                                 I. INTRODUCTION

      The essence of the fresh-start principle in bankruptcy is two-fold. It
provides the financially troubled individual with an opportunity to obtain
relief from the burden of pre-existing debts and to properly position the
individual to re-join the economy as a productive member of society.1 The
fresh-start principle generally takes the form of forgiving the debtor part or
all of the debts she incurred prior to her bankruptcy filing.2 In addition to
discharging her pre-petition debts, the fresh-start policy facilitates the
joining of the debtor to the economy by allowing the debtor to keep her
basic necessities of life.3
      Traditionally, many have asserted, and some continue to assert, that the
scope of the fresh-start policy has a direct impact on the frequency of
consumer bankruptcy filings. According to the neoclassical economic
model, the pleasure maximizer individual will resort to bankruptcy as long
as the fresh-start policy is sufficiently broad and economically wise.
However, some recent empirical studies have questioned the accuracy of
that mono-utility traditional assessment tool. Some scholars have suggested

   1. See Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial
Rehabilitation of the Consumer Debtor, 48 WASH. & LEE L. REV. 515, 515-16, 529 (1991);
Karen Gross, Preserving A Fresh Start for the Individual Debtor: The Case for Narrow
Construction of the Consumer Credit Amendments, 135 U. PA. L. REV. 59, 60 (1986).
   2. Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV.
1393, 1393 (1985).
   3. See Flint, supra note 1, at 515-17.


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that the deficiencies of the neoclassical model may result from its failure to
consider several important non-economic factors, such as stigma and
personal morality.
      This Article first explores the traditional economic model of bank-
ruptcy filings, assesses its limitations, and briefly considers several non-
economic factors that may further explain and clarify the circumstances
contributing to consumer bankruptcy filings. The Article then focuses on the
impact of an individual s moral code on their propensity to commence
bankruptcy protection. In that context, the Article addresses the nature of
trust relationships in the credit market and their likely impact on the
debtor s moral considerations as they relate to her decision to file bank-
ruptcy. Furthermore, the Article examines the relationship between religion
and morality as well as the potential affect of religion on the individual s
moral considerations in filing for bankruptcy. Finally, the Article takes the
position that the moral appeal of bankruptcy should not simply be
incorporated as a cost in the neoclassical economic model. Rather, the
Article advocates the adoption of a multi-utility model that acknowledges
two distinct sources of utility shaping the individual s behavior: pleasure
and morality.

                       BANKRUPTCY FILINGS

     Traditionally, many have assumed that a general downturn or upturn in
economic conditions explains respective rises or declines in the rate of
bankruptcy filings.4 While some studies have correlated those trends to
bankruptcy filing rates,5 others have demonstrated that the increase in
personal bankruptcy filings could not be explained solely by adverse
economic conditions.6 As a result, most economists have begun to rely

    4. See Philip Shuchman, A Brief Survey of Empirical Research on Personal Bankruptcy
in the USA with Comments on Legislative Impact, in DEBTORS & CREDITORS: A SOCIO-
LEGAL PERSPECTIVE 293, 301 (Iain Ramsay ed., 1986).
    5. See, e.g., The Increase in Personal Bankruptcy and the Crisis in Consumer Credit:
Hearings on S. 89 Before the Subcomm. on Administrative Oversight and the Courts of the
Senate Comm. on the Judiciary, 105th Cong. 23 (1997) [hereinafter Personal Bankruptcy
Hearings] (statement of Professor Ian Domowitz, Department of Economics and Institute for
Policy Research at Northwestern University) ( I fail to see that the correlation of bankruptcy
activity with aggregate economic fluctuations, no longer exists. The correlation is there
for consumer bankruptcies, as well as for the total, which includes corporate and farm
activity. ).
    6. See Shuchman, supra note 4, at 301-02, 306; see also Personal Bankruptcy
Hearings, supra note 5, at 39 (statement of Kim Kowalewski, Chief, Financial & General
Macroeconomic Analysis Unit of the Congressional Budget Office) ( Although nonbusiness
bankruptcies have risen during recessions . . . , they have tended to increase even more
dramatically during economic expansions. ); id. at 23 (testimony of Ian Domowitz) ( While

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                          3

primarily on the neoclassical economic model to explain and predict
individuals propensity to commence bankruptcy proceedings.7 Under this
model, the economic man is assumed to act rationally by calculating
costs and benefits in an attempt to maximize his pleasure or wealth.8 The
underlying assumption is that individuals act in response to economic
incentives and disincentives.9 Thus, under the neoclassical economic model,
we expect individuals to file for bankruptcy protection when the economic
incentives of bankruptcy will make them better off.10

it was once assumed that bankruptcies reflected general economic trends, the correlation no
longer exists. ) (quoting from materials presented by the banking industry); id. at 140
(statement prepared by the American Bankruptcy Institute).
     7. See Michelle J. White, Economic Versus Sociological Approaches to Legal
Research: The Case of Bankruptcy, 25 L. & SOC Y REV. 685, 686 (1991).
     8. See CHARLES E. DYKE, PHILOSOPHY OF ECONOMICS 31 (1981) ( All actions are
directed toward the gaining of pleasure or the avoidance of pain. );TERESA A. SULLIVAN,
239 (1989) [hereinafter AS WE FORGIVE OUR DEBTORS]; Richard A. Posner, The Economic
Approach to Law, 53 TEX. L. REV. 757, 761 (1975) ( The basis of an economic approach to
law is the assumption that the people involved with the legal system act as rational
maximizers of their satisfactions. ); Philip Shuchman, Theory & Reality in Bankruptcy:
The Spherical Chicken, 41 LAW & CONTEMP. PROBS. 66, 71 (1977) ( [I]ndividuals and
firms engaged in consumer credit transactions always act as profit maximizers. ); White,
supra note 7, at 690 ( Rational choices made by individuals are the central focus of the
economic theory of bankruptcy. ).
     9. See Posner, supra note 8, at 763 ( [T]he legal system is treated as a given and the
question studied is how individuals or firms involved in the system react to the incentives
that it imparts. ).
    10. See William H. Meckling, Financial Markets, Default, and Bankruptcy: The Role
of the State, 41 LAW & CONTEMP. PROBS 13, 27 (1977) ( Changes in bankruptcy law which
lower the costs or raise the benefits to debtors . . . will without question increase both the
number of debtors who elect that option . . . . ); John H. Moore, Foreword [to a
symposium on the economics of bankruptcy reform], 41 LAW & CONTEMP. PROBS. 1, 5
(1977) ( Lower bankruptcy costs will cause a higher rate of bankruptcy election by debtors
. . . ); White, supra note 7, at 686; William J. Woodward, Jr. & Richard S. Woodward,
Exemptions as an Incentive to Voluntary Bankruptcy: An Empirical Study, 57 AM. BANKR.
L.J. 53, 54 (1983) ( [I]f the provisions of the bankruptcy law are made more attractive to
debtors, more of them will select that option as a solution to their financial problems. A
corollary of this idea is commonly used to deal with rising bankruptcy rates: make the law
less attractive to debtors and less of them will choose bankruptcy. ). However, not all
consumers are predicted to file for bankruptcy protection when it will make them better off.
See White, supra note 7, at 686. ( [E]conomic models are used to make predictions
concerning groups of consumers, not particular consumers. Rather, the stronger the
incentive is for a group of consumers to file for bankruptcy, the more of them are
hypothesized to do so. ).

4                            WHITTIER LAW REVIEW                                 [Vol. 20

     Specifically, the neoclassical model suggests that, by manipulating the
economic incentives and disincentives in the bankruptcy process, one can
either encourage or discourage the reliance on the bankruptcy process by the
  economic man .11 For example, since a broad fresh-start policy can attract
to the bankruptcy process many individuals who wish to improve their
economic position, disincentives can also be placed in the bankruptcy
system to deter well-off individuals from resorting to it.12 Further, by
adopting both disincentives for using the bankruptcy system and incentives
for negotiating with the creditors outside of the bankruptcy system, the use
of out-of-court repayment agreements in lieu of the bankruptcy process will
presumably increase.13 Moreover, the increase or decrease in the amount of
property exemptions a debtor may claim in the bankruptcy process will
theoretically provide an incentive or disincentive (as the case may be) for
commencing bankruptcy protection.14

   11. See Teresa A. Sullivan, et al., Consumer Debtors Ten Years Later: A Financial
Comparison of Consumer Bankrupts 1981-1991, 68 AM. BANKR. L.J. 121, 122 (1994)
( The simple economic model hypothesizes that consumer behavior responds predictably to
incentives and disincentives built into the law, so that, to change debtor behavior,
legislators must change the schedule of incentives and disincentives. ); William T.
Vukowich, Reforming the Bankruptcy Reform Act of 1978: An Alternative Approach, 71
GEO. L.J. 1129, 1153 (1983).
   12. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 234. For example, the
legislature may adopt a liberal discharge policy for well-deserving debtors and a very
conservative discharge policy for well-off debtors.
   13. See id.
   14. See id.

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                           5

      Under the neoclassical model, in considering whether to invoke
bankruptcy protection, the economic man will translate the bankruptcy
system s incentives and disincentives structure into costs and benefits.15
When the benefits of filing bankruptcy exceed the related costs the rational
maximizer economic man would commence bankruptcy protection.16 The
benefits generally associated with bankruptcy laws may include the
forgiveness of certain debts, the exemption of certain property from the
hands of the creditors (and the bankruptcy trustee),17 and the availability of
public financial support.18 In contrast, the costs generally associated with
bankruptcy laws include relinquishing nonexempt assets,19 the potential
difficulties in obtaining credit in the future,20 and the payment of court filing

   15. See Meckling, supra note 10, at 25 ( An individual debtor s decision to resort to
bankruptcy is a function of the costs and benefits to him of alternative courses of action. ).
   16. See Lawrence Shepard, Personal Failures and Bankruptcy Reform Act of 1978, 27
J.L. & ECON. 419, 429 (1984) ( Just as the natural incidence of joblessness depends on the
attractiveness of unemployment, so theory suggests that the natural rate of bankruptcy
varies with the perceived amenities and disamenities of financial failure. ); Shuchman,
supra note 8, at 67 ( [C]hanges in bankruptcy law which lower the costs of bankruptcy or
raise the benefits to insolvent debtors will directly increase the number of debtors who opt
for bankruptcy instead of paying their debts. ); Michelle J. White, Personal Bankruptcy
Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 3 (1987) ( [T]his
Article pursues an economic approach to analyzing personal bankruptcy . . . . The
[economic] model s results are startlingly clear in demonstrating how attractive filing for
bankruptcy is for debtors who are motivated purely by economic considerations. ). A
comparative study between the fresh-start policies in the United States and Canada found a
strong inference on the connection between economic incentives and bankruptcy filing
rates. See F. H. Buckley, The American Fresh Start, 4 S. CAL. INTERDIS. L. J. 67, 68 (1994)
( [The] econometric study finds that consumer bankruptcy filing rates in the United States
exceed those in Canada, and that the difference may plausibly be attributed to the broader
American fresh start rights. ).
   17. See Vukowich, supra note 11, at 1152-53. Among other things, Professor
Vukowich contends that less people will file for bankruptcy protection if the property
exemption levels offered in the bankruptcy system is reduced. Id.
   18. [E]xpected levels of public assistance constitute logical determinants of the natural
level of bankruptcy: in a welfare-free world, the loss of assets associated with financial
failure could threaten one s very survival, motivating consumers to be so conservative in
their financial affairs as to make failure a relatively remote possibility. On the other hand,
the higher are levels of guaranteed public support, the more likely are consumers to incur
bankruptcy and the risks that can contribute to failure. Thus, bankruptcy rates are expected
to move directly with the expected levels of public assistance.
 Shepard, supra note 16, at 429.
   19. See Woodward & Woodward, supra note 10, at 59 ( [I]f debtors are rational
maximizers, one would think that the prospect of keeping more property from creditors
through bankruptcy would induce some debtors to choose bankruptcy who would not have
otherwise done so. Perhaps more important for policy makers is the corollary: reducing or
eliminating this incentive . . . will slow the rate of bankruptcy filings. ).
   20. See Jackson, supra note 2, at 1428; see also Meckling, supra note 10, at 25; J. Fred
Weston, Some Economic Fundamentals for an Analysis of Bankruptcy, 41 LAW &
CONTEMP. PROBS. 47, 60-61 (1977) ( [The debtors ] need to borrow from a number of
sources, their knowledge that credit information is collected by lenders, their need for future

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and attorney fees.21


loans, all provide strong stimuli to debtors to honor their obligations. ). But see Moore,
supra note 10, at 4 ( Some seminar participants pointed out that full discharge under
bankruptcy may make credit easier for individuals to obtain than it would be if they still had
heavy debt obligations on the books- yet another reason to expect an increase in the rate of
bankruptcy declaration. ); Shepard, supra note 16, at 427 ( While it is true that declaring
bankruptcy can affect one s future access to credit, most individuals for whom bankruptcy
is potentially a wealth-maximizing strategy have previously impeached their credit rating
and exhausted their credit sources. ).
   21. See Meckling, supra note 10, at 25.

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                             7

      While the neoclassical model has been widely used in formulating
bankruptcy policy and in predicting bankruptcy filings,22 the model has
recently been attacked as ineffective in fully predicting the debtor s
behavior.23 Several empirical studies attempted to assess the correlation
between the property exemption level and bankruptcy filing rates. Those
studies tested the hypothesis that, as the property exemption level in
bankruptcy increases, bankruptcy filing becomes more attractive for the
rational wealth maximizer debtor. However, most studies have found slight,
if any, correlation between bankruptcy exemption level and bankruptcy
filing rates.24
      Furthermore, based on the assumptions of the neo-classical economic
model, a recently conducted study attempted to predict the percentage of the
American households that will file for bankruptcy protection. The study

   22. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 234 ( These predictions [based
on the economic model] have powerfully influenced both the course of the bankruptcy
policy debates and subsequent changes in the bankruptcy laws. ); Teresa A. Sullivan, et al.,
Consumer Bankruptcy in the United States: A Study of Alleged Abuse and of Legal Culture,
20 J. CONSUMER POL Y 223, 252 (1997).
   23. See, e.g., AS WE FORGIVE OUR DEBTORS, supra note 8, at 235-36 ( The data
indicate that the economic model has surprisingly little predictive power . . . ). But see
Note, A Reformed Economic Model of Consumer Bankruptcy, 109 HARV. L. REV. 1338,
1338 (1996) ( This Note seeks to demonstrate that . . . the underlying economic
methodology remains an effective way to evaluate the available data and to think about
consumer bankruptcy. ).
   24. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 236 ( These data suggest to us
that the relatively simplistic economic models used in bankruptcy policymaking do not
work. . . ); Lisa J. McIntyre, A Sociological Perspective on Bankruptcy, 65 IND. L. REV.
123, 128 (1989) ( [T]he carrot-and-stick approach to bankruptcy has flourished. Yet,
the data gathered in this research flatly contradict such conventional wisdom. ); Moore,
supra note 10, at 6 ( The wide district-to-district variations in the rate of election of chapter
XIII plans were cited as evidence that factors not taken into account by the economic model
are important in understanding and predicting the effects of changes in bankruptcy law. );
Shuchman, supra note 8, at 86, 88 ( States with larger exemptions do not necessarily have
more bankruptcies . . . . ); Sullivan et al., supra note 11, at 124 ( The data provide little
evidence that exemptions influence behavior any more in 1991 than they did in 1981 . . . .
[T]he data still refute the hypothesis that debtors in high-exemption states behave
differently from debtors in low-exemption states- a key premise underlying the simple
economic model. ); Elizabeth Warren, Reducing Bankruptcy Protection for Consumers: A
Response, 72 GEO. L.J. 1333, 1344 (1984); White, supra note 7, at 707 ( I would
characterize the [neoclassical economic model] as providing suggestive rather than
definitive results concerning whether economic factors are important determinants of the
decision to file for bankruptcy. Further research is clearly needed . . . . ); Woodward &
Woodward, supra note 10, at 68 ( This study shows that states that have eliminated the
disparity between exemptions available to debtors outside of bankruptcy and those available
to debtors in bankruptcy have not realized significantly lower bankruptcy rates than those
states which have continued to allow debtors access to the [Bankruptcy] Code s relatively
higher bankruptcy exemptions. ). But see White, supra note 7, at 701 ( [T]he type of data
collected by . . . [and presented in the book AS WE FORGIVE OUR DEBTORS] cannot be used
to study how people make the decision to file for bankruptcy, because their data set includes
only people who actually filed for bankruptcy and excludes those who did not file. ).

8                           WHITTIER LAW REVIEW                                 [Vol. 20

concluded that the neo-classical economic model is dramatically deficient in
predicting the human behavior in the bankruptcy context. The author found
the actual percentage of individual filings for bankruptcy protection was
significantly lower than the percentage predicted by the neo-classical
economic model.25

   25. The author noted:
      [D]espite the rapid growth in the number of personal
      bankruptcy filings, far fewer households file for
      bankruptcy than the number that could benefit financially
      from doing so . . . . I calculate[d] that at least 12 [percent]
      of U.S. households would benefit financially by filing for
      personal bankruptcy. In comparison, the proportion of
      U.S. households that actually filed for bankruptcy
      averaged only .66 percent per year in the decade from
 Michelle J. White, Creditors Remedies and Debtors Right to File for Bankruptcy: Why
Don t More Households Go Bankrupt? 1-2 (Feb. 7, 1996) (unpublished manuscript
presented at the Law & Economics Workshop Series at the University of Toronto).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                           9

      Two main explanations suggest the lack of direct empirical correlation
between economic incentives and bankruptcy filing rates. First, some
contend that the neoclassical economic model does not adequately predict
the rate of bankruptcy filings because individuals do not act as rationally as
the model assumes.26 This lack of rationality may occur because the
individual is under too much pressure to engage in a methodological
analysis of costs and benefits.27 An individual also may engage in irrational
behavior due to inherent cognitive deficiencies.28 Further, many individual
debtors lack adequate information regarding their options to make a rational
decision and simply cannot understand the complexities of the bankruptcy
systems.29 On top of that, in many cases a debtor s attorney does not
adequately explain the debtor s available options.30

   26. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 243 ( Debtors may fail to
follow the economic model of the bankruptcy debates because the circumstances of their
decisions inhibit the economic rationality predicated by the model. ); Shuchman, supra
note 8, at 89 ( The examples also suggest that consumer creditors are not rational and
prudent in the sense that economic theory would indicate, unless it is a theory with much
more behavioral analysis and content than most economists will accept. ); Woodward &
Woodward, supra note 10, at 54 ( [D]ebtors may not act rationally about choosing a
solution to their financial problems. ).
(1988) ( A large body of research shows that under stress people s decision-making
becomes less rational . . . . ); AS WE FORGIVE OUR DEBTORS, supra note 8, at 244
( Debtors on the verge of a bankruptcy filing are under enormous pressure from their
creditors . . . . There may be terrific tension in their homes . . . . Most of those intimately
associated with the bankruptcy process- the judges and the lawyers- explain that the
debtors emotions . . . do not leave them in a position to calculate much of anything. . .
. ); Moore, supra note 10, at 6 ( A bankrupt borrower, for example, may be in too much
personal turmoil or under too much pressure from creditors to undertake a cool assessment
of the costs and benefits of various legal options. ).
   28. See Melvin A. Eisenberg, The Limits of Cognition and the Limits of Contract, 47
STAN. L. REV. 211, 213 (1995) ( [E]mpirical evidence shows that actors characteristically
violate the standard rational-choice or expected-utility model, due to the limits of
cognition. ); Jackson, supra note 2, at 1405 ( [A]vailable evidence suggests that many
people systematically fail to pursue their own long-term interests when making decisions
about whether to spend today or save for tomorrow . . . . [I]ndividuals systematically
misjudge (or ignore) their own interests and that this bias leads them to consume too much
and save too little. ).
   29. See Gary Neustadter, When Lawyer and Client Meet: Observations of Interviewing
and Counseling Behavior in the Consumer Bankruptcy Law Office, 35 BUFFALO L. REV.
177, 239 (1986) (The author s findings suggest consumer debtors rarely have independent
information about the complex bankruptcy process that would allow them to challenge the
advise of their attorneys.); Warren, supra note 24, at 1348 ( It requires a great deal of
accurate information about the complexities of the bankruptcy statutes and about how they
relate to one s own assets and debts before any rational maximizer who was so inclined
could make the economically based decision that [Professor] Vukowich assumes will be
made routinely. ); Woodward & Woodward, supra note 10, at 54 ( Debtors may not know
that the [bankruptcy] provision is attractive at the time they exercise their choice. ).
   30. See Neustadter, supra note 29, at 229 ( [L]awyers did not regularly discuss
solutions to financial distress other than solutions offered by federal bankruptcy law. ).

10                            WHITTIER LAW REVIEW                                     [Vol. 20

 If the economic incentive proponents agreed that thousands of almost-bankrupt debtors
could not make such decisions, the proponents might assert that surely debtors attorneys
could help them to do so. The reality of consumer bankruptcy practice, which involves a
high volume of cases, relatively low fees, and, consequently, few hours spent per case, does
not support such an assumption. . . . How the attorney will be paid, the attorney s
perceptions of the bankruptcy judge before whom the attorney must regularly appear, the
attorney s perceptions of the helpfulness of the chapter 13 trustee, and the attorney s
previous experiences [in bankruptcy] . . . , are among the factors that encourage an attorney
to steer a debtor into a particular chapter for noneconomic reasons. Debtors, if they are so
inclined, need an enormous amount of information to make an economically based election.
There is no reason to assume that many of them will get it.
Warren, supra note 24, at 1348; White, supra note 7, at 692 ( [I]n reality, debtors are
likely to be uninformed concerning the law and to depend on lawyers for advice. But
lawyers own incentives are to make themselves as well off as possible, which is not
necessarily the same as making their clients as well off as possible. ); 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, 406 (1994)
( Rather than making informed decisions reflecting their particular circumstances and
personal goals, debtors are steered to particular choices by their attorneys. Too often, I
believe, those choices reflect the best interests of the attorneys rather than the interests of
debtors themselves. ).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                             11

     The second suggested reason for the absence of empirical support for
the economic model is that other non-pecuniary factors may influence an
individual s decision regarding whether to file for bankruptcy protection.31
By its nature, the economic model narrowly focuses on economic variables
to predict individuals behavior.32 The narrow focus of the neoclassical
model may explain its deficient explanatory and prediction value.33 Its
narrow focus omits factors such as social stigma,34 moral appeal of
bankruptcy,35 demographics36 and legal culture37 from the analysis. These

    31. See Jon Elster, Introduction, in RATIONAL CHOICE 23 (Jon Elster, ed., 1986);
Moore, supra note 10, at 6 ( [I]t was objected that lenders and borrowers behavior, even
if rational, can be explained but not predicted by economic calculus. . . . Those making this
argument questioned . . . whether critics of the reforms have given adequate consideration
to nonpecuniary factors that influence behavior in financial markets. . . ); Shuchman,
supra note 4, at 302-03 ( My experience with economists suggests that some of their
mistakes are because of their implicit presumptions about human psychology which, for
their discipline they assume must necessarily be limited. ); Warren, supra note 24, at 1345.
    32. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 244 ( The economic model is
global in that it purports to explain choice . . . by looking only at economic variables. );
ETZIONI supra note 27, at 12 ( The neoclassical paradigm does not merely ignore the moral
dimension but actively opposes its inclusion. . . . Other neoclassicists . . . belittle the role of
values, or see them as but one source of tastes among many others. ); RICHARD
Granovetter and Richard Swedberg eds., 1992) ( Economic action is socially situated and
cannot be explained by reference to individual motives alone. It is embedded in ongoing
networks of personal relationships rather than being carried out by atomized actors. ).
    33. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 244; ( [The economic model s
narrow focus] . . . excludes other characteristics that may impinge on debtor decision
making, and this may contribute to its weak explanatory power. ); DAVID CAPLOVITZ,
these default-debtors were no doubt eligible for bankruptcy, only 7 percent of the 1,261
debtors . . . filed for bankruptcy. ).
    34. See ERIC POSNER, LAW AND COOPERATION (forthcoming 1998) (manuscript at 4, on
file with author) ( [People] conform to social norms. The question left unanswered by law
and economics is why people conform to social norms, or . . . how such norms arise.
Without an answer to that question, one cannot predict the effect of the enactment of a law
on people s behavior. ); McIntyre, supra note 24, at 128-29; Honorable Burton Perlman,
A View from the Bench, 61 U. CIN. L. REV. 511, 517 (1992); White, supra note 16, at 11.
    35. See Jackson, supra note 2, at 1427-28 (suggesting that ethical sensibilities may
deter an individual from commencing bankruptcy protection); McIntyre, supra note 24, at
129; Shuchman, supra note 4, at 303;
        [T]here are some debtors with moral compunctions about
        straight bankruptcy. They want to pay their debts. And not
        because it is more prudent or more rational, and not
        because they are profit maximizers. They think it is right
        to pay their debts and that they should (that normative
        posture) do so. Such a specific morality is a non-economic
        cause of economic actions. It does not make its way into
        our economists theoretical calculus.
Shuchman, supra note 8, at 84; White, supra note 7, at 695; White, supra note 16, at 25;
see also discussion infra Part IV.
    36. Some demographic variables that have been linked to bankruptcy are marital status,

12                            WHITTIER LAW REVIEW                                    [Vol. 20

additional considerations may help to portray a more complete picture of the
phenomena.38 The next section of this Article explores the nature of one of
the non-pecuniary factors: morality. The discussion on morality and
bankruptcy will address the issue of how individuals behavior is
influenced by their perception of right and wrong as shaped by credit trust
relationships and by religious beliefs.

                   TO INITIATE BANKRUPTCY

migration history, home ownership, business ownership and job prestige. See AS WE
FORGIVE OUR DEBTOR, supra note 8, at 244-46. Also, one study correlated ethnicity with
bankruptcy. See CAPLOVITZ, supra note 33, at 275 ( [B]ankruptcy seems to be affected
much more by the amount of indebtedness and by ethnicity than by garnishment. ).
    37. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 246 ( In addition to the
influence of economic and social-demographic factors, we believe that debtors bankruptcy
decisions may be importantly influenced by the local legal culture they encounter when they
seek legal help. ); Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many
Cultures, 67 AM. BANKR. L.J. 501, 508 (1993) ( A possible alternative theory that may
appeal to some is replacing a simple economic model of consumer behavior with a simple
economic model of their lawyers behavior. (emphasis added)); Sullivan et al., supra note
22, at 244-56; Teresa A. Sullivan et al., The Persistence of Local Legal Culture: Twenty
Years of Evidence from the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL Y 801,
839-57 (1994).
    38. Even some economists have acknowledged the limits of the neoclassical economic
model. See Posner, supra note 8, at 774 ( A scientific theory necessarily abstracts from the
welter of experience that it is trying to explain, and is therefore necessarily unrealistic
when compared directly to actual conditions . . . . Similarly, an economic theory of law is
certain not to capture the full complexity, richness and confusion of the phenomena . . . that
it seeks to illuminate. ); White, supra note 7, at 695 ( Thus the economic model sets out
the conditions under which individuals or couples have an incentive to file for bankruptcy .
. . . However, economists do not believe that individuals always do everything that they
have an incentive to do. They believe that other influences besides economic ones affect
individual behavior . . . . ); White, supra note 16, at 3, 25 ( [Not] only economic issues
and economic motivations are important in explaining individuals decisions to file for
bankruptcy. . . . Economic and non-economic factors thus interact in determining the
prevalence of opportunistic behavior and the frequency of bankruptcy filings. ).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                           13

     The individual s moral beliefs about right and wrong contribute
significantly to an individual debtor s decision whether to commence
bankruptcy protection.39 In addition to pursuing pleasure and wealth
maximization as the neoclassical model advocates, an individual continu-
ously attempts to promote her moral ideology. Strong evidence suggests that
an individual s moral perception of right and wrong can deeply shape the
individual s actions and choices.40 Moral perception affects individual s
behavior in the personal, as well as, in the economic spheres of life.41
Contemplating an act that is inconsistent with one s moral standards can
result in a bad conscience,42 and this bad conscience functions as a deterrent
from engaging in an immoral conduct.43 Similarly, some studies suggest that
debtors consciences, arising from their moral obligation to repay their
debts, deters some from filing for bankruptcy protection since they view that

    39. See McIntyre, supra note 24, at 129; see also Moshe Silberg, Law and Morals in
Jewish Jurisprudence, 75 HARV. L. REV. 306, 322-23 (1961) ( Society, to be sure, has an
interest in the fulfillment by every individual of his obligations toward the others, but the
individual debtor has no material interest in paying his debts; he is forced to do it either by
the recognition of his moral obligation or by the fear of coercion. ). See generally ETZIONI,
supra note 27, at 12 (Acts are morally right when they conform to a relevant principle or
duty. ).
    40. See ETZIONI, supra note 27, at 12; see also id. at 93 ( [T]he majority of choices
people make, including economic ones, are completely or largely based on normative-
affective considerations, not merely with regard to selection of goals, but also of means . . . .
  ); id. at 90 ( The main thesis advanced here is that the most important bases of choices are
affective and normative. That is, people often make non or sub-rational choices, first
because they build on their normative-affective foundations, and only secondly because
they have weak and limited intellectual capabilities. ); For a detailed summary of scientific
evidence supporting the assertion that many individuals frequently act out of moral reasons
and not merely to enhance their pleasure or wealth, see id. at 51-63; JOAN ROBINSON,
ECONOMIC PHILOSOPHY 13 (1962) (The author identified the requirements for an economic
system as a set of rules, an ideology to justify them, and an conscience in the individual
which makes him strive to carry them out. ); TOM R. TYLER, WHY PEOPLE OBEY THE LAW
24 (1990) ( The final influence on social behavior is the person s own set of normative
values- the sense of what is right or appropriate. ); id. at 56 ( Obedience to the law is also
strongly linked to people s personal morality. ). See generally J. GAY T. MEEKS,
(J. Gay T. Meeks ed., 1991).
MUSLIM ECONOMIC THOUGHT 1 (1997) ( An understanding of religious teachings helps put
ethical issues, including those involving economic relations, in a fuller perspective. ).
    42. See ETZIONI, supra note 27, at 32 ( [E]veryday observations and experience, as
well as scientific experiments . . . , show that many purchases are accompanied by or
followed by feelings of guilt, shame, [or] regrets . . . . ); see also id. at 71-76.
shame is a powerful weapon of deterrence and that some societies use the power of shame
to influence unacceptable behavior); Harold G. Grasmick & Donald Green, Deterrence and
the Morally Committed, 22 SOC. Q. 1, 12 (1981) (the authors found that moral commitment
has strong deterrent effect on an individual s propensity to commit a crime).

14                             WHITTIER LAW REVIEW                                    [Vol. 20

course of conduct as immoral.44

     44. See Braucher, supra note 37, at 510 ( For example, one of the debtors lawyers in
the study heavily advertises chapter 13 repayment plans [as opposed to the chapter 7
liquidation] and says his philosophy is that most people want to pay and want to honor
their commitments and the sanctity of contract. ); id. (to deal with the moral dilemmas
involved in filing for bankruptcy protection some debtors have formed support groups); id.
at 540 ( Bankruptcy has strong . . . moral implications for many debtors . . . . To describe
clients feelings and attitudes, the subject lawyers used words such as these -dejected,
ashamed . . . . The lawyers also said that their clients are influenced by moral values . . . );
id. at 541 ( One point made by most lawyers is that clients usually say they want to pay
their debts. ); id. at 565 (One bankruptcy attorney, who was interviewed, said that despite
his efforts to alleviate moral concerns of the debtor in filing for bankruptcy, [s]till, people
feel they are stealing. ); id. (Another bankruptcy attorney, who was interviewed, said: [A]
lot could go chapter 7 but are going to feel they are doing something immoral. ). Others
reached a similar conclusion. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 337
( [W]e do not doubt that moral conviction continues to play an important part in keeping
many people out of bankruptcy . . . We believe that people generally repay the debts
because they believe it is the right thing to do, so that legal enforcement is rarely required.
Even among people who have taken the fateful step of filing for bankruptcy, a substantial
number reaffirm some of their debts, often for no discernible reason other than their sense
of obligation. ); id. at 338 ( If the economic theorists are correct that moral conviction and
stigma are the principle deterrents to bankruptcy, the data suggest that these deterrents
work. ); Sheila Driscoll, Note, Consumer Bankruptcy and Gender, 83 GEO. L.J. 525, 541
(1994) ( Many [clients] have a strong bias against bankruptcy. . . . They feel [they] have
committed a terrible sin and are ashamed to admit . . . they can t pay their bills. ); Charles
G. Hallinan, The Fresh Start Policy in Consumer Bankruptcy: A Historical Inventory
and an Interpretive Theory, 21 U. RICH. L. REV. 49, 141 (1986) ( A second form of [non-
monetary] control [against bankruptcy filing] is the debtor s own sense of moral obligation
regarding the payment of dischargeable debts. ); Margaret Howard, A Theory of Discharge
in Consumer Bankruptcy, 48 OHIO STATE L.J. 1047, 1061 (1987) ( [A] debtor unable to
satisfy his obligations experiences resulting feelings of shame. . . . ); McIntyre, supra note
24, at 129; Whitford, supra note 30, at 401 ( [Many debtors have ethical objections of
obtaining a bankruptcy discharge for debts to which there is no defense. ); Woodward &
Woodward, supra note 10, at 66 ( The decision to file a voluntary bankruptcy petition is
highly complex one involving for some debtors serious questions of morality and self-worth
. . . ); Philip Shuchman, An Attempt at a Philosophy of Bankruptcy 21 UCA L. REV.
403, 455-56 (1973) ( It seems evident that many, probably most, persons in our society
view debt repayment as a matter of duty. They repay their debts . . . because it is proper and
right to pay one s debts. ); see also Arnold v. West (In re Arnold), 869 F.2d 240, 243 (4th
Cir. 1989) ( [Some debtors, although perhaps a small, but nonetheless appreciable minority
. . . feel a moral obligation to . . . repay as much of their debts as possible. ).

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                         15

     Some contend that social factors, including morality, should simply be
incorporated into the neoclassical economic model as a non-pecuniary
cost.45 However, as other scholars have persuasively argued, the moral
appeal, as well as other social factors are distinct and separate from acts of
pleasure both in terms of inner psychic states and in terms of attendant
behavioral consequences. 46 Therefore, they should not simply be
incorporated into the economic model. Instead, some scholars suggest that
the model for understanding an individual s behavior should be based on a
multi-utility, as opposed to a mono-utility world.47 According to those
scholars, the study of individual behavior in general, and particularly in
bankruptcy, should abandon the assumption that individuals are motivated
by a single motive of pleasure. Rather, this model should acknowledge that
two distinct sources of utility exist: pleasure and morality.48

    45. See, e.g., Note, supra note 23, at 1343 ( In order to provoke filing, the benefits of
bankruptcy must be sufficiently large to overcome both the pecuniary and nonpecuniary
costs of filing. If we omit nonpecuniary costs from the model, as did most proponents of the
traditional economic approach, the model will underestimate the level of benefits necessary
to induce filing. ); Hallinan, supra note 44, at 142. The same argument has been previously
advanced in other areas as well. See, e.g., Harold G. Grasmick & Robert J. Bursik, Jr.,
Conscience, Significant Others and Rational Choice: Extending the Deterrence Model, 24
L. & SOC Y. REV. 837, 841 (1990) (arguing conscience and peer group pressure can fit
easily into a rational choice model of behavior and proposed to expand the deterrence
model to include these additional non-state factors); POSNER, supra note 34, ch. 3 at 3
( The proper approach is not to give altruism any particular explanatory weight in a theory
of cooperation, but to treat it as a taste like any other. ).
    46. ETZIONI, supra note 27, at 36-37.
    47. One such author explains:
       The idea that individuals pursue two or more utilities is
       hardly a new one. A major contribution to such an
       approach is found in the writings of the grandfather of
       neoclassical economics, Adam Smith. In The Theory of
       Moral Sentiments he observes that people act out of a
       conscience and are related to one another not merely via a
       market- in exchange relations, trying to maximize their
       interest- but also as people whose psychic well-being is
       deeply dependent on the approval of others, which in turn
       is based on acting morally, not on enhancing wealth.
 Id. at 36-37. See also Amartya K. Sen, Rational Fools: A Critique of the Behavioral
Foundations of Economic Theory, 6 PHIL. & PUB. AFF., 317, 336 (1977) ( The purely
economic man is indeed close to being a social moron. Economic theory has been much
preoccupied with this rational fool decked in the glory of his one all-purpose preference
ordering. To make room for the different concepts related to his behavior we need a more
elaborate structure. ).
    48. Indeed:
       [I]t is productive to view choices as multi-staged, multi-
       level events, in which moral and pleasure considerations
       are combined in complex manners. And the evidence
       strengthens the view that it is not productive to consider
       moral commitments as just one more source of consumer
       preferences, by suggesting that moral commitments are

16                          WHITTIER LAW REVIEW                                 [Vol. 20

     best viewed as a significant and irreducible category.
ETZIONI, supra note 27, at 67.

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                          17

     While the issue is heavily contested, sufficiently plausible reasons exist
for not simply incorporating the moral appeal into the neoclassical economic
model. First, whereas the objective of the neoclassical economic theory is to
maximize wealth or pleasure, the objective of discharging a moral
obligation is not necessarily motivated by pleasure or wealth maximization,
but rather by the goal of doing what is right.49 Second, the neoclassical
economic model assumes that an individual will pursue her self-interest.50
However, at times, the morality of an individual dictates certain behavior
that does not further ones self-interest, but instead furthers the interests of
others. Thus, by incorporating the moral appeal factor into the neoclassical
model, one dilutes the economic model of any substance.51 Third, the
neoclassical economic model assumes an individual will easily be able to
substitute or trade off goods and services. However, since quantitative

   49. As Etzioni explains:
       If one ignores the distinction, by arguing that both kinds of
       acts are merely sources of satisfaction, merely another
       source of preference, and hence not different in principle,
       one overlooks important substantive differences between
       acts that discharge moral commitment and acts that
       enhance satisfaction . . . . [P]eople s behavior is
       systematically and significantly affected by moral factors
       that cannot be reduced to considerations of personal gain:
       Many people forgo free rides out of a sense of public
       duty and commitment to fairness; refuse welfare because it
       violates their dignity; choose to cooperate as their solution
       to the Prisoner s Dilemma, and so on.
Id. at 22. See also id. at 67 ( Examination of behavior shows that individuals who seek to
live up to their moral commitments behave in a manner that is systematically and
significantly different from those who act to enhance their pleasures. ); TYLER, supra note
40, at 24 ( The final influence on social behavior is the person s own set of normative
values- the sense of what is right or appropriate . . . . People focus not on personal gain or
loss within a given situation but on the relationship between various kinds of potential
behavior and their assessments of what behavior is appropriate. ).
NATIONS 14 (Modern Lib. Edition 1937) (1776).
   51. As Etzioni explains:
       To argue that people are pleasure-driven is a powerful
       hypothesis; it surely explains a good part of human
       behavior . . . . But once the satisfaction of one s own
       needs, and self-sacrifice, as well as service to others and to
       the community- once all these become satisfaction, the
       explanatory hypothesis of the concept is diluted to the
       point where it becomes quite meaningless. One empties
       the concept in trying to save it and the paradigm built
       around it . . . . Indeed, if people can derive pleasure
       directly from serving others and the community, there is
       no need for an invisible hand to guarantee that
       individualistic pursuits will lead to the satisfaction of the
       common good.
ETZIONI, supra note 27, at 28-29.

18                            WHITTIER LAW REVIEW                                   [Vol. 20

differences sometimes exist between objects subject to moral commitment
and objects sought by pleasure, they cannot be as easily substituted as the
neoclassical model assumes.52 Lastly, whereas the neoclassical economic
model assumes that individuals are attempting to maximize their pleasure or
wealth, the evidence indicates that, when confronted with a moral duty,
individuals tend to balance their moral commitments against their pleasures,
rather than maximize either one.53
      The remainder of this Article discusses two aspects of moral appeal
and their impact on the individual s propensity to commence bankruptcy
petition. The two aspects are trust relationships in the credit market and
religious beliefs.54


1. The Definition and the Types of Trust Relationships.

   52. See id. at 67, 71.
   53. According to Etzioni:
       The concept of a single over-arching utility disregards a
       major human attribute observable in the behavior under
       study: people do not seek to maximize their pleasure, but
       to balance the service of two major purposes- to advance
       their well-being and to act morally. The quest for balance
       is evident in that, as individuals advance one major over-
       arching concern, they continuously strive not to neglect
       the other.
Id. at 83. See also Jon Elster, Introduction, in RATIONAL CHOICE, supra note 31, at 25
( [P]eople do not seek the best alternative in the feasible set, but limit themselves to what
seems to be good enough or satisfactory. ).
   54. Other factors exist that influence one s moral appeal to file bankruptcy. For
example, an individual s perception of right and wrong may be influenced by general social
perceptions. That is, overtime changing social views about the deviant nature of bankruptcy
may influence the individual s perception about the moral appropriateness of bankruptcy.
See Frederick X. Gibbons, Stigma and Interpersonal Relationships, in THE DILEMMA OF
eds., 1986) ( [T]he process of stigmatization is inextricably bound up with the concept of
morality. ); McIntyre, supra note 24, at 129 ( Assuming that individuals generally
continue to prefer to do the right thing, then we can also assume that they will continue
to look to other members of their communities to help define what the right thing is. ).

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                          19

      The concept of trust may play a large role in individuals moral
calculation when contemplating whether to file a bankruptcy petition.55 As
will be demonstrated below, certain trust relationships between a debtor and
a creditor are likely to cause a debtor to feel morally obligated to sustain that
creditor-debtor relationship and avoid resorting to bankruptcy.
Various disciplines have attempted to address the concept of trust, including
sociology,56 economics,57 psychology,58 political science,59 history,60
anthropology,61 sociobiology,62 and marketing.63 However, while there may
be significant interest in this area across the spectrum, no single unified
approach for analyzing trust seems to exist.64
      In business settings,65 trust can be defined as a mechanism that
mitigates opportunism in exchange contexts characterized by uncertainty
and dependence. 66 Business trust relationships can be either an interper-
sonal trust relationship or an institutional trust relationship.67 An interper-
sonal trust relationship exists between two or more individuals. An
institutional trust relationship is generally formed between an individual and
a large organization.68

2. The Evolution of a Trust Relationship and the Implication on Morality.

   55. See generally McIntyre, supra note 24, at 133.
   56. See, e.g., BERNARD BARBER, THE LOGIC AND LIMITS OF TRUST (1983); James M.
Henslin, What Makes for Trust? in DOWN TO EARTH SOCIOLOGY (James M. Henslin, ed., 3d
ed. 1981); J. David Lewis & Andrew Weigert, Trust in Social Reality, 63 SOC. FORCES 967
   57. See, e.g., KENNETH J. ARROW, THE LIMITS OF ORGANIZATION 23 (1974); Partha
Dasgupta, Trust as a Commodity, in TRUST: MAKING AND BREAKING COOPERATIVE
RELATIONS 49 (Diego Gambetta, ed., 1988).
   58. See, e.g., Roy J. Lewicki & Barbara B. Bunker, Trust in Relationships: A Model of
Development and Decline, in CONFLICT, COOPERATION, AND JUSTICE 133 (Barbara B.
Bunker & Jeffrey Z. Rubin eds., 1995).
   59. See id. at 133, 134.
   60. Id. at 135.
   61. See id.
   62. See id.
   63. See, e.g., Patricia M. Doney & Joseph P. Cannon, An Examination of the Nature of
Trust in Buyer-Seller Relationships, 61 J. MARKETING 35 (1997); Christine Moorman, et al.,
Factors Affecting Trust in Market Research Relationships, 57 J. MARKETING 81 (1993).
   64. See Lewicki & Bunker, supra note 58, at 135.
   65. As opposed to the romantic personal relationship context.
   66. Doney & Cannon, supra note 63, at 35.
   67. See id. at 36 ( Although some researchers disagree about whether organizations
can be targets of trust, a large stream of literature emphasizes that people can develop trust
in . . . organizations . . . , as well as individuals. ).
   68. See Lewicki & Bunker, supra note 58, at 136 ( One can have trust in particular
people (personal trust) and trust in organized systems (institutional trust) . . . . ).


20                             WHITTIER LAW REVIEW                                     [Vol. 20

      Trust evolves as the relationship develops. Two69 main stages of a trust
relationship link and build on each other as the trust relationship evolves.70
The first stage of a trust relationship is the deterrence-based trust. In this
stage the parties trust one another because of the credible threat of
punishment that will be imposed on the party who breaches the trust. That
is, one party trusts the other simply because it believes that the other party
will not violate the terms of their agreement since the benefits of doing so
are less than the costs of being punished for it.71 The deterrence-based trust
arises when the parties are not familiar with each other and therefore rely on
the threat of punishment mechanism to be able to trust the previously
unknown party.72
      Under this stage of a trust relationship, the parties rationally
contemplate the risks associated with the trust relationship. Since the parties
are unfamiliar with each other and are not otherwise attached, no emotions
are involved in that relationship. A decision by any party to breach the level
of trust in that relationship will be made largely out of cold-blooded,
rational assessment of the costs and benefits involved.73 Hence, morality and
one s conscience plays a minor role in the deterrence-based trust
relationship since emotions and personal attachment considerations are not

   69. While several scholars discuss a third stage of a trust relationship, the
identification-based trust, this Article does not address that stage since it does not apply to a
creditor-debtor relationship. See generally Debra L. Shapiro et al., Business on a
Handshake, 8 NEGOTIATION J. 221, 227-29 (1992).
   70. See Lewicki & Bunker, supra note 58, at 167; see also Shapiro et al., supra note 69,
at 222-28.
   71. See Doney & Cannon, supra note 63, at 37 ( 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 58, 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. ).
   72. See Lewicki & Bunker, supra note 58, at 163 ( Relationships founded on
[deterrence-based trust] are one way of dealing with the lack of trust when parties first get
together. In these relationships, parties are careful about the degree of risk and build in
safeguards to protect themselves. ).
   73. See id. ( While [the parties in a deterrence-based relationship] may be
disappointed, they will not feel deeply aggrieved if trust is broken. ); Lewis & Weigert,
supra note 56, at 973 ( [T]he cognitive-rational base of trust is more extensive and
continuing in the formation of trust relationships in secondary groups. Consequently, with
population growth and greater structural differentiation, a greater number of social
relationships are based on cognitive trust than on emotional trust. ).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                         21

      While a trust relationship generally begins at the deterrence-based
state, at some point the trust relationship may develop to the second stage,
the knowledge-based trust.74 That is, after the parties obtain a certain
comfort level with each other in the deterrence-based trust relationship, the
trust relationship may progress to the next level of a trust relationship.75
Rather than relying on punishment to assure conforming behavior,
knowledge-based trust is founded on the information and relationship
between the parties. Parties create a knowledge-based trust relationship
when they have adequate information about each other and can accurately
predict the other party s likely behavior.76 To accurately predict this
behavior, the parties must develop some sort of a personal relationship. That
personal relationship is created when the parties become closely familiar
with each other through repeated positive interactions, regular
communication, and courtship.77
      The personal relationship and the personal knowledge developed by
the parties in the knowledge-based trust creates a certain emotional bond
between the parties.78 This emotional bond discourages the parties from
violating the trust.79 Thus, in the knowledge-based trust relationship, one s

    74. See Lewicki & Bunker, supra note 58, at 157.
    75. See id.
    76. See id. at 142, 149.
    77. See Doney & Cannon, supra note 63, at 37 ( Repeated interaction enables the party
to interpret prior outcomes better, providing a basis for assessing predictability. ); Lewicki
& Bunker, supra note 58, at 157 ( [Progressively] the parties will also begin developing a
knowledge base about the other s needs, preferences, and priorities. This information about
the other creates the foundation for knowledge-based trust . . . . ); id. at 149 ( The better I
know the other, the better I can trust what the other will do because I can accurately predict
how they will respond in most situations. ).
       [A]ccurate prediction requires an understanding that
       develops over repeated interactions in multidimensional
       relationships . . . plus two additional factors: regular
       communication and courtship. . . . Without regular
       communication, we lose touch with each other- not only
       emotionally but in our ability to think like and react like
       the other. . . . Courtship is conducted by interviewing
       the other, watching the other perform in social situations,
       experiencing the other in a variety of emotional states, and
       learning how other people view the other s behavior.
Id. at 150; Shapiro et al., supra note 69, at 225 ( Two approaches described above,
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. ).
    78. See Lewis & Weigert, supra note 56, at 971 ( [T]rust creates a social situation in
which intense emotional investments may be made. . . . This emotional component . . . is
normally most intense in close interpersonal trust. ).
    79. See id. ( [The inclination not to violate the trust between the parties] derives from
the knowledge that the violation of trust threatens to bring severe emotional pain to all who
are implicated in the trust relationship, including paradoxically the violators themselves. );
id. at 974 ( Personal trust involves an emotional bond between individuals, and the

22                           WHITTIER LAW REVIEW                                  [Vol. 20

conscience, and hence internalized moral system, will discourage an
individual from breaching the trust relationship.

3. The Trust Relationship in the Debtor-Creditor Context.

      Trust relationships in today s private credit market arise largely in two
contexts. First, in the inter-personal credit trust relationship, the credit
transaction occurs between an individual debtor and an individual creditor.
In this group, one could find a credit transaction between a consumer debtor
and an individual owner of a grocery store who sells goods to customers on
credit. Another example would be a partnership of two dentists who allow
installment repayment plans for the dental services they provide.
      Second, in the institutional credit trust relationship, the credit
transaction exists between an individual and a large institution or
organization. In this group, one would find the credit transactions entered
between an individual and a credit card or a financing company.

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. ).

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                          23

      In the beginning of either relationship, the parties to the credit
transaction generally neither know each other, nor do they have an existing
personal relationship. Thus, in both cases, the credit trust relationship will
generally start as a deterrence-based trust relationship. To that end, the
debtor and creditor will largely trust each other because some punitive
mechanism incorporated into their credit relationship provides the parties
adequate comfort that the other party will not breach that trust relationship.80
      Following the initial stage in the deterrence-based credit trust
relationship, some debtor-creditor relationships will sufficiently develop
and, hence, evolve into the second stage of a credit trust-relationship, the
knowledge-based trust relationship. The debtor-creditor relationships that
are most likely to evolve into that second stage are the ones that created
some type of personal relationship. That personal relationship is created
when the parties achieve a greater degree of knowledge about each other
and become closely familiar with each other through repeated positive
interactions, regular communication, and courtship.

   80. For example, in the credit card setting, the credit card company will require the
consumer debtor to sign an agreement form which will detail, among other things, the rights
that the credit company will have against the individual in the event of default, such as to
initiate court proceedings or to notify the appropriate credit bureau of the event of default.
From the debtor s perspective, the agreement will detail the rights the debtor has against
the credit card company in the event the credit card company fails to live up to its
obligation to extend certain amount of credit to the debtor. This agreement, which has the
threat of punitive actions in the event of default, will enable the two strangers to
comfortably enter into the deterrence-based credit trust relationship.


24                             WHITTIER LAW REVIEW                                     [Vol. 20

      Inter-personal credit trust relationships are the most likely candidates to
evolve into the second level of trust relationship since the parties generally
become familiar with each other through repeated credit transactions as well
as regular communication and interactions. In contrast, institutional credit
trust relationships are the least likely candidates to evolve into the second
level of trust relationship since institutional credit trust relationships rarely
involve continuous personal contact between the parties;81 therefore the
parties have fewer opportunities to become personally familiar with each

   81. See Lewicki & Bunker, supra note 58, at 137 ( Institutional trust develops when
individuals must generalize their personal trust to large organizations made up of
individuals with whom they have low familiarity, low interdependence, and low continuing
of interaction. ).
   82. In other settings, others have also found that there is a difference between the trust
level among individuals as compared to individuals and organizations. See Doney &
Cannon, supra note 63, at 35 ( Anderson and Narus . . . suggest that trust of an individual
differs in nature from that of an organization. ). Another reason why there is less developed
trust in institutional trust relationship is because there is no reciprocal trust between a large
institutional creditor and an individual debtor. That is, an individual debtor is unlikely to
develop her trust in a large institutional creditor where the large institutional creditor does
not place its trust on the individual debtor. See McIntyre, supra note 24, at 137 ( Once,
perhaps, creditors saw lending money as an act of trust, but, today, lenders decisions to
enter into creditor-debtor relationships are more typically based on reliance. ); Dasgupta,
supra note 57, at 49, 53 ( [I]t is often the case that the mere fact that someone has placed
his trust in us makes us feel obligated, and this makes it harder to betray that trust. ); Lewis
& Weigert, supra note 56, at 971 ( When we see others acting in ways that imply that they
trust us, we become more disposed to reciprocate by trusting in them more. ).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                          25

      For example, a consumer debtor is less likely to develop a trust
relationship beyond the deterrence-based level with a large credit card
company. The consumer debtor is not likely to have any face to face contact
with the institutional creditor. The parties infrequently communicate, and
when they do, they mainly use impersonal channels such as a telephone.
Furthermore, a courtship will not likely develop between the parties. That is,
the parties are not likely to watch each other act in social situations or
observe each other in variety of emotional states. Therefore, the lack of
personal bonding preclude most of these types of relationships from
developing into a knowledge-based credit trust relationship.83 However,a
consumer debtor is more likely to develop a trust relationship beyond the
deterrence-based level with the neighborhood grocery shop owner. The
individual consumer and the grocery shop owner are likely to develop some
kind of a personal relationship. The personal relationship is likely to
develop out of the repeated interactions between the parties over a
continuous period of time, the regular personal face-to-face communication
between the two individuals, and the courtship that may develop between
the two parties. This courtship includes the opportunity to observe each
other in various emotional conditions and to watch each other act in various
inter-personal and social settings. Therefore, the creation of some personal
bonding between these parties would allow their trust relationship to evolve
into the knowledge-based credit trust relationship.
      Since an inter-personal credit trust relationship is more likely to evolve
into a knowledge-based trust relationship, it is more likely to involve
emotional attachment. Since any trust relationship, including a credit one,
that has an emotional component is likely to trigger one s conscience and
moral values,84 a consumer debtor, who is in an inter-personal trust
relationship that evolved into the knowledge-based level, is likely to be
deterred from violating that credit trust relationship out of moral grounds.
Therefore, such an individual is more likely to avoid defaulting on the terms
of the credit and, thereby, avoid filing for bankruptcy protection.

   83. Some contend that the reason many relationships remain in the deterrence-based
trust relationship is because many people view the transactions they enter into merely as
part of a short term relationship. Since they do not view the relationships as long term in
nature, they have less incentive to invest their energy in developing personal relationships
which are critical for the evolution of their trust relationship to the next level. See Shapiro
et al., supra note 69, at 226 ( Americans negotiators are frequently frustrated by the desire
of Asian firms to conduct long, discovery-based conversations before beginning to discuss
the business issues. This frustration results from a clash between the American, who is
thinking of deals as independent transactions, and the Asian partner, who is thinking of
each deal as a building block for a long-standing relationship. ). A similar argument can be
made in the credit setting. As individuals find out that they have many indistinguishable
options in deciding which credit card company to use, they feel that they can simply quickly
switch to another credit card company if they so desire. Thus, there is less incentive for the
consumer debtors to work hard to establish a long-term relationship.
   84. See supra notes 78-79.

26                              WHITTIER LAW REVIEW                                      [Vol. 20

      In contrast, since an institutional credit trust relationship is more likely
to remain in the deterrence-based trust relationship, that credit relationship
is unlikely to involve emotional component but, rather, will be primarily
based on rational calculation of the costs and benefits of the credit
relationship. Since that deterrence-based credit trust relationship does not
have a significant emotional component, the individual s conscience and
moral values are not likely to be involved in deciding whether to violate the
credit trust relationship and to file for bankruptcy.85

   85. A similar observation was made by a practicing attorney during an interview. One
attorney said: Some debtors say they feel bad about discharging debt, and I wonder if they
do. Some are overly emotional, and I m thinking, What s the big deal? Especially with
credit cards- it s not like a friend or relative. Braucher, supra note 37, at 564. Other
researchers have also come to the conclusion that institutional credit trust relationships lack
GLOBAL CREDIT CARD SOCIETY 177 (1995) ( We live in a society that is undergoing
increasing rationalization . . . Being in itself rationalized, the credit card is playing a crucial
role in fostering the expansion of rationalization and, with it, the dehumanization of our
lives. ).

1998]        MORAL APPEAL OF PERSONAL BANKRUPTCY                                27

      This analysis has important implications to the contemporary American
consumer bankruptcy system. The recent trend of rapid increase in personal
bankruptcy filings in the United States86 can partly be explained by the
increase of institutionally oriented deterrence-based trust relationships and
the corresponding decline of inter-personal knowledge-based trust

   86. See Consumer Debt: Hearings on H.R. 74 Before the Comm. on Banking and
Financial Services, 104th Cong. 378-79 (1997) [hereinafter Consumer Debt Hearings]
(testimony of the American Bankruptcy Institute).

28                            WHITTIER LAW REVIEW                                    [Vol. 20

      As consumers in America increasingly utilize credit cards to finance
their everyday life,87 more credit card holders become deeply indebted, and
resort to bankruptcy protection.88 Since institutional credit trust relationships
(such as credit card) does not trigger emotional feelings (as it remains in the
deterrence-based trust relationship), an individual s conscience and moral
values are not likely to have a significant role in a growing contemporary
cases where credit card indebtedness consumer contemplates to file for
bankruptcy.89 Thus, as more financially troubled individuals have growing

    87. See id. at 380-81 ( Revolving credit, primarily credit card debt, has been the fastest
growing component of consumer debt, averaging annual increases of 20 percent over the
past two years. . . . ). For a detailed description of the growth of credit card debts in the
global society see RITZER, supra note 85.
    88. Some scholars found that many bankruptcy filings are closely correlated with high
credit card debts. See Personal Bankruptcy Hearings, supra note 5, at 21 (testimony of Ian
Domowitz) ( I must now point out that credit card use is very highly correlated with, if not
a causal determinant of, consumer bankruptcy. ). Furthermore, empirical evidence suggests
that a rapidly growing portion of unsecured debts of individuals who file for bankruptcy in
the U.S. is credit card debts. See AS WE FORGIVE OUR DEBTORS, supra note 8, at 183. This
empirical study from the early 1980s indicates that almost all wage earners who filed for
bankruptcy protection had some unpaid credit card debt at the time of their bankruptcy
petition. Moreover, almost twenty-five percent of the average bankrupt s unsecured debts
was credit card debt. Id. at 69, 183. While the average credit card debt for the average
bankrupt in the early 1980s was approximately $3,700, some contemporary reports indicate
that the average bankrupt in 1994 and 1995 had a credit card debt of approximately
$40,000. See Consumer Debt Hearings, supra note 86, at 345 (testimony of George M.
Salem). However, studies conducted by the credit card industry indicates lower percentages.
1997) ( Bankcard debt made up 15.2 percent of the total debt for California Chapter 7
filers and was claimed by 81.7 percent of all Chapter 7 filers in that state. ); see also
Personal Bankruptcy Hearings, supra note 5, at 78 (testimony of Kenneth R. Crone, a
Senior Vice President of Visa) (The petitions study showed that, on average, the
bankcard debts of those who declare bankruptcy represent only 14.8% of total debts. );
High Rochester Bankruptcies Blamed on Credit Card Misuse, Times Union, Jan. 8, 1998 at
B2 (credit card companies state that credit card debt represents approximately sixteen
percent of total bankruptcy debt).
    89. Accordingly:
       [M]ost credit has become impersonal, a matter of
       computer printouts and objective indicators such as
       income and payment record. Few creditors today base
       credit decisions on the personal characteristics that were
       so important to the neighborhood banker in a simple time.
       Conversely, it was a lot harder to let down one s banker-
       neighbor, Mr. Reed, than it is to stiff a huge impersonal
       Sears or Citibank.
AS WE FORGIVE OUR DEBTORS, supra note 8, at 13; id. at 337 ( In today s market, most
creditors are likely to be large, impersonal corporations . . . . Debtors may feel less
compunction about stiffing ITT Financial than they would Mr. Herring, especially if ITT
virtually thrust the credit on them . . . , while Mr. Herring sold on credit to help out when
times were tough. ).
       It may also be that, notwithstanding advertising efforts at
       personalizing large financial institutions, individual

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                          29

amounts of credit card debts, the less there will be a trust-based moral
deterrence to resort to bankruptcy.


      Religion has a profound impact on one s internalized moral code and
behavior.90 An individual s internalized morality is said to be influenced by
the prevailing religious thinking in a particular locality.91 Some argue that
religion helps to shape the moral belief system of both religious and secular

       debtors of such businesses feel no internalized obligation
       in the sense that they might if the creditor was a natural
       person; one who- because of sentiment being- would be
       disappointed or have his feelings hurt at non-payment. 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
       and may . . . finally be submerged in the balance sheets,
       computer print-outs, and statistical analysis. . . . Feelings
       of having done right by or wronged another seem to arise
       out of the personal relationships of natural individuals. It
       is unlikely that the law can bring about alterations in
       human psychology to the extent of making a large business
       corporation into a person . . . .
Shuchman, supra note 44, 429-31. Others have impliedly linked the rise of bankruptcy
filings in the U.S. to the decrease in a knowledge-based trust relationships. See Woodward
& Woodward, supra note 10, at 54 (asserting that the latest steady rise in bankruptcy filings
is partly due to the progressive depersonalization of the debtor-creditor relationship. . . ).
    90. See William R. Garrett, The Micro/Macro Linkage in the Scientific Study of
Religion: The Problem of Assessing the Influence of Religion on Individuals and Society, in
SOCIAL CONSEQUENCES OF RELIGIOUS BELIEF 1 (William R. Garrett, ed., 1989) ( The
assertion that religion represents a vital social force capable of generating profound
consequences over the diverse spheres of individual conduct and collective affairs will meet
with little resistance nowadays . . . . ); WILSON, supra note 41, at 1 ( Religion has a
profound influence on personal . . . values . . . . ).
    91. See John Adams, Economy as Instituted Process: Change, Transformation and
Progress, 28 J. ECON. ISSUES, 331, 332-33 (1994) (the author views society as a function of
institutions, churches, governments, families, banks and codes of law, the matrix of
culture and the institutional structures that provide a context for personal behavior. ).
    92. See WILSON, supra note 41, at 1 ( It is the author s belief that [theological] . . .
contributions should not be neglected, even in the context of increasingly secularized
societies. . . . Religion has a profound influence on personal and social values, which affects
even those without [religious] beliefs. ).

30                            WHITTIER LAW REVIEW                                   [Vol. 20

      Historically, religions have had a profound impact both on society and
on individual s moral code.93 Jewish tradition and law continues to serve as
model of moral behavior of Jews around the world. That impact is
illustrated in the way Judaism influences individual behavior in Israel,
where the majority of people are Jews.94 While the majority of the people in
Israel consider themselves as secular Jews,95 the impact of the Jewish
tradition and law on the Jews in Israel remains significant.96

    93. See Roger L. Shinn, From Theology to Social Decisions- and Return, in MORALITY
OF THE MARKET: RELIGIOUS AND ECONOMIC PERSPECTIVES            175, 178 (Walter Block, et al.,
eds., 1985) ( In short, the great world religions have always responded to social-historical
situations and have exercised influence on society. . . . But in either case the concerns of
faith touch all of social and personal life. ).
    94. Jews constitute approximately eighty-two percent of the population in Israel. See
Kevin Avruch, The Society and its Environment, in ISRAEL A COUNTRY OF STUDY 88 (Helen
C. Metz, ed. 1990).
    95. See id. at 97, 99 ( In 1988 two-thirds to three-quarters of Jewish Israelis were not
religious or Orthodox in observance or practice. . . . All varieties of Judaism- ultra-
Orthodox, neo-Orthodox, the Reform and Conservatives forms- together counted as their
formal adherents only a minority of Jewish Israelis. ).
    96. Despite the number of secular Jews:
       [R]eligion was a potent force, and increasingly so, in
       Israeli society. . . . [R]eligion has exerted influence
       through the symbols and practices of traditional Judaism
       that literally pervade everyday life. . . . [Additionally,]
       Israel s political elite has selectively co-opted symbols
       and practices of traditional Judaism in an attempt to
       promote nationalism and social integration. In this way
       traditional Judaism, or some aspects of it, becomes part of
       the political culture of the Jewish state, and aspects of
       traditional Judaism are then enlisted in what some analysts
       have called the civil religion of Jewish society. Thus,
       Judaism speaks to Israelis who may themselves be
       nonreligious, indeed even secularist.
RULE OF LAW AND THE NATURE OF POLITICS] 20 (1996) ( But, it seems to me that in the last
few years a problem, the scope and the meaning of which is still unclear, has evolved which
is the increasing disattachment of the Jewish tradition among various broad segments of
society arising out of a resistance to deepening religious coercion (translation by author)).

1998]           MORAL APPEAL OF PERSONAL BANKRUPTCY                                          31

      Jewish tradition does not favorably view one taking upon herself
onerous debt to finance an extravagant lifestyle. To that end, the Jewish
tradition advocates in favor of reduced level individual consumption.97 In
the event that an individual has become indebted to finance her consump-
tion, she has a very strong moral obligation to repay that debt in full.98
While the Jewish bible provides for the forgiveness of debts owed by poor
people every seven years,99 the moral obligation to repay the debt despite
the forgiveness resurfaces when the debtor subsequently obtains the
financial means to repay the discharged debt.100

AND   SPENDING MONEY 132 (1995) ( Thou shall walk modestly before thy God is a
spiritual demand by the prophet Amos. This is reflected in the simplicity in furniture,
clothing, and lifestyle of Jews throughout the centuries, a simplicity that has always been an
integral part of Jewish living. ); The prophet Amos made other stern warnings against
luxurious standard of living among the Jewish people. Amos 3:5 (King James). He criticized
people who have built houses of hewn stone. Amos 5:11 (King James). Amos denounced
those who lie upon beds of ivory, and stretch themselves upon their couches, and eat
lambs from the flocks, and the calves out of the midst of the stall; who sing idle songs to the
sound of the harp . . . who drink wine in bowls, and anoint themselves with the chief oils.
Amos 6:4-6 (King James).
   98. According to Tamari:
       The same moral code that obligates a Jew to lend money to
       another obligates the latter to repay his debts. . . . While the
       debtor may claim protection against paying interest forbidden
       by the Torah, he cannot escape paying the debt. . . . [T]here is a
       distinct moral demand that the debtor repay his debts out of his
       private assets in order to be clean before God and men, a
       moral demand, yet one that cannot always be enforced by the
       rabbinic courts. . . . After all, the debtor does not possess any
       moral right that would absolve him from repayment of his debts
       . . . . In contrast, Halakhah defines as a form of robbery, the
       arrangements for part payment in settlement of debt. This is an
       additional expression of the moral obligation of people to meet
       their responsibilities in the marketplace.
TAMARI, supra note 97, at 206, 209.
   99. At the end of every seven years thou shall make a release . . . every creditor . . .
shall release that which he hath lent unto his neighbor; he shall not exact it of his neighbor
and his brother . . . Deut. 15:1-2 (King James). However, this financial relief mechanism
was limited to the benefit of the most needy debtors. See GEORGE HOROWITZ, THE SPIRIT OF
JEWISH LAW 495 (1953) ( As the Scriptural passages plainly show, the basic intent was to
relieve needy persons, poor debtors struggling under a burden of debt. ). Moreover, not all
debts were to be forgiven. See id. ( Obligations in the nature of fines or penalties, loans not
due until after the Seventh Year; claims already reduced to judgment but not collected
before the Seventh Year, and any loan secured by a pledge; were not released. ).
  100. See HOROWITZ, supra note 99, at 496 ( The Mishnah states plainly that avoidance
of an obligation by virtue of the statute was not favored; for whoever repays a debt in the
Seventh Year, the spirit of the Sages is pleased with him. ); Jonathan M. Lewis, Neither a
Borrower Nor a Lender Be, JUSTICE, 41, 45 (Dec. 1995) ( But debtors remained under a
moral obligation to repay their debts one day if they could, in order to be clean before God
and men. In the end, The wicked man borrows and does not repay. ).

32                            WHITTIER LAW REVIEW                                  [Vol. 20

      Similar to Judaism, Christianity widely views default on debt-
repayment as morally wrong.101 Some in the religious community hold that,
absent exceptional circumstances, debt-repayment should not be excused
and must be honored regardless of how long it takes to completely pay it
off.102 Indeed, the religious importance of meeting one s personal
obligation to repay her debts is illustrated in the Bible where a defaulting
debtor may have had to become a slave as a way of repaying her debts.103
Other scholars in the Christian religion believe that, while bankruptcy is not
desirable, it should be tolerated in some cases and not regarded as
immoral.104 This position primarily relies on the forgiving orientation of
Christianity. While in Biblical times society expected borrowers to repay
their debts, the possibility existed of periodically forgiving the debtor for her
debts to achieve the important goals of economic equality and family

  101. See John R. Sutherland, The Ethics of Bankruptcy: A Biblical Perspective, 7 J. BUS.
ETHICS 917, 921 (1988) ( Is it Biblical to claim bankruptcy? Christians differ strongly in
their attitudes toward this question, but certainly there is widely-held conviction that
declaring bankruptcy is wrong. ).
  102. See Sutherland, supra note 101, at 917; see also ALBERT J. JOHNSON, A
CHRISTIAN S GUIDE TO FAMILY FINANCES 82, 85 (1983) (citing the Bible s admonition that
  the wicked borrow and do not repay. . . the author suggests that avoidance of debt
obligation through bankruptcy should not be pursued by Christians as a way of handling
financial trouble); id. at 83-84 ( Regardless of the leniency of the current bankruptcy law,
the Christian finds no comfort in the Bible for taking such a step. Bankruptcy may be legal,
but its morality is another question. . . . But for many, bankruptcy comes up simply as a
consequence of poor planning and bad judgment. Under such circumstances, I believe the
obligation still remains to pay what is owed. ).
       Now isn t that amazing to you, that somebody would
       actually default on a debt that they created legally,
       morally, ethically, and then would default on it? See, it
       ought to never happen with Christianity, or it ought to
       happen so rarely that we would take that person, and we
       would admonish them according to Matthew 18, and bring
       them before the church to restore them back into the faith.
Sutherland, supra note 101, at 917 (quoting LARRY BURKETT, GOD S PRINCIPLE FOR
OPERATING BUSINESS (Christian Financial Concepts 1982).
  103. Sutherland, supra note 101, at 923.
  104. Id. at 926.
  105. Sutherland explains:
       This study has tried to show that while borrowers were
       expected to repay their debts in Biblical times, there was
       every possibility of those debts being canceled after a
       period of time in order to achieve higher goals of
       economic justice and stability, the preservation of the
       family, and the maintenance of an adequate living standard
       for all. . . . Thus, my conclusion would be that any
       repentant sinner should be a candidate for forgiveness,
       including repentant bankrupts.
Id. at 924-25; WILSON, supra note 41, at 84 ( If a borrower fails to repay due to difficult
financial circumstances, then the lender should be charitable. ).

1998]          MORAL APPEAL OF PERSONAL BANKRUPTCY                                      33

     Contemporarily, financially troubled Christians are strongly urged to
consider alternatives to bankruptcy, such as entering into a debt repayment
workout agreement with their creditors.106 Hence, heroic attempts by
financially troubled individuals to repay their debts are favorably viewed by
some as a true Christian act. 107

  106. See Sutherland, supra note 101, at 925.
  107. Id. ( [F]orgoing a discharge from debt by the courts in favor of attempting to meet
creditors claims is a tremendous act of Christian witness. ).

34                            WHITTIER LAW REVIEW                                   [Vol. 20

     Whereas in Judaism and Christianity failure to fulfill one s obligation
is deemed as an immoral act, in Islam the fulfillment of one s contractual
obligation is viewed as one of the most important human achievements and
divine virtues.108 Islam regards fulfillment of one s contractual obligation as
sacred because it amounts to a fulfillment of biblical commandments and
God s wishes.109 In Islam, the covenant between God and the individual
mandates the person to abide by one s personal contractual obligation.
Indeed, in Islam, several Koranic verses demonstrate the divine nature of
contractual agreements.110 In Islam, the pervasive sacred nature of fulfilling
one s obligations is likely to influence the minds of financially troubled
Muslims and deter them from filing bankruptcy to avoid debt repayment..
     Similarly, Hinduism also places a high value on debt-repayment. In
Hinduism, freedom from personal debt is highly valued.111 Accordingly, the
Hindu religion commands those who undertake personal debts to repay their
debts.112 Hindus consider the failure to repay one s debts to be a sin.113
While a Hindu debtor who repays her debts is promised she will go to
heaven,114 a Hindu debtor who fails to do so faces severe religious
consequences. The debtor is cursed with an incurable disease, ending up
with a horrible afterlife in hell.115
     The religious contours of Christianity, Islam, Judaism and Hinduism
clearly foster in their believers, a moral code that emphasizes the importance
of debt-repayment, and hence the avoidance of bankruptcy at all costs.
While this hypothesis seems plausible, empirical studies on the relationship
between religious beliefs and the propensity to resort to bankruptcy should

  108. See Saba Habachy, Property, Right, and Contract in Muslim Law, 62 COLUM. L.
REV. 450, 465 (1962) ( Fulfillment of contracts is exalted in the Qur an to rank with the
highest achievements and the noblest virtues. ).
  109. See id. at 468 ( [I]n Islam the exhortation to fulfill contracts does not come from a
human lawgiver. It is an order emanating from God Himself. ); Kristin L. Peters Hamlin,
Note, The Impact of Islamic Revivalism on Contract and Usury Law in Iran, Saudi Arabia,
and Egypt, 22 TEX. INT L L.J. 351, 364 (1987) (In Islam, all agreements must be
observed, since God is a witness to any contract entered into by individuals . . . . ).
  110. See Habachy, supra note 108, at 466 & 468; Hamlin, supra note 109, at 364-65;
Hans Wehberg, Pacta Sunt Servanda, 53 AM. J. INT L L. 775, 775 (1959) ( Muslims
must abide by their stipulations. This is clearly expressed by the Koran in many places, for
example, where it is said: Be you true to the obligations which you have undertaken . . . .
Your obligations which you have taken in the sight of Allah . . . For Allah is your
witness. ). But see WILSON, supra note 41, at 125 ( [D]ebt rescheduling [in Islam] is
desirable, and debt forgiveness especially worthy. ).
  112. See id. at 83 ( [The obligation to repay one s debts] arises in the case of a Hindu
debtor out of religious considerations. ).
  113. See id. ( [N]on-payment of debt is treated as a sin . . . . ); id at 85 ( [N]on-
payment of debt has been declared as a religious [offense] of a serious nature. ).
  114. See id. at 85.
  115. See id. at 86. In the after life, a defaulting debtor is expected to become a slave or
the creditor is expected to inflict constant trouble on the debtor. Id. at 85-86.

1998]       MORAL APPEAL OF PERSONAL BANKRUPTCY                             35

be explored.

                                V .CONCLUSION

     Understanding human behavior in general, and in the bankruptcy
context in particular, is a complex undertaking. However, to appreciate that
complexity, one must examine and consider various perspectives from
diverse fields. A mono-utility approach of enhancing pleasure or wealth has
some fundamental problems as it fails to properly account for the other
qualitatively different influences and goals of the individual. This Article
focused on the moral dimension of the human conduct as it relates to
bankruptcy filing. It attempted to demonstrate that the debtor s moral
underpinnings in the contexts of trust and religion may have a discernible
impact on an individual s propensity to commence bankruptcy protection.

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