In the late 1980s, when the upsurge in bankruptcies had just begun and folks were searching for explanations, cries of a decline in stigma rang out. Interestingly, despite an essential absence of data from debtors themselves, this explanation was long-lived. Indeed, it was cited frequently during the Congressional debates that preceded BAPCPA. But as any sociologist would tell you, a decline in stigma as an explanation just doesn’t make sense. Rates of bankruptcy filings are cyclical; stigma does not wax and wane in that way.

Just last month, Sociological Focus published my article, "Managing the Stigma of Personal Bankruptcy" (co-authored with Dr. Leon Anderson), in which I provide evidence that the stigma associated with filing is alive and well. For those unable to access the article, allow me to summarize. Although the sample was small, 95 percent of the debtors reported that they felt stigmatized by their bankruptcies. For example, a retired mail carrier stated: "I thought of it as a mark against my name . . . It was too embarrassing . . . I feel like I failed. You know, to go bankrupt, that’s a sign of failure."

Not only did the debtors vocalize their feelings of stigma, but they also managed it in ways that are classic among other stigmatized groups. For example, they tried to conceal their bankruptcies, especially from their parents. One man, a father of two young boys, reacted in the following way when he was asked if his mom knew he had filed: "OH HELL NO!!! No, no, no, no way, no way. Nope. And she won’t ever know. Never! Never. . . . She’d be like, ‘Argh, you piece of shit. Why did you do that?" Debtors also practiced avoidance, whereby they avoided situations that might expose them. An example of this was described by a woman who said that she would never again take her kids to their family dentist because debts to him had been discharged. Rather than risk the potential embarrassment, she concluded that they would have to find a new dentist. Finally, the debtors went to great lengths to differentiate themselves from all those other "deadbeats" out there who supposedly abuse the system. They insisted that their own bankruptcies were bankruptcies "of necessity," not extravagance or abuse. And finally, three-quarters of them insisted that under no circumstances whatsoever would they set foot in bankruptcy court again. One man, who blamed his wife for their bankruptcy, said that he would divorce her first. Another said that he’d kill himself before he’d file again. This is probably an exaggeration, but it demonstrates the power of the stigma of bankruptcy.

I have no doubt that there are folks out there who file without feeling a shred of remorse or stigma. But my research suggests that they are the minority. For centuries, bankruptcy has been highly stigmatized. And, I would argue, it still is.

Update: We have opened the comments for this posting.

When it comes to the bankruptcy filing rate, fiscal year 2006 (10/1/2005 onward) is turning out to be a very odd period. First, filings surged to historic heights in early October. Then, in the second quarter, filings dropped to the lowest rate since the mid-1980s. An intervening event was the mid-October effective date of an omnibus bankruptcy reform bill, the most extensive changes to the formal bankruptcy law in a generation. Most bankruptcy filers are individuals rather than business entities, so it appears that individuals became sensitive to changes to the Bankruptcy Code and may have altered their plans accordingly. Does this mean that individuals also can be expected to alter their borrowing behavior because of the bankruptcy law changes? Not so fast, say Professors Susan Block-Lieb and Ted Janger in an article just published in volume 84 of the Texas Law Review. 

Block-Lieb and Janger apply insights from behavioral decision research suggesting that individuals’ cognitive limitations, and not strategic behavior, provide an explanation of consumer overextension that is more consistent with consumer credit data. They also consider the possibility that lenders capitalize on these cognitive limitations. Whatever happens with the official bankruptcy filing rate reported by the government, Block-Lieb and Janger warn in their Texas article that “overleverage is here to stay.”

The much-maligned Bankruptcy Abuse Prevention and Consumer Prevention Act (BAPCPA) may have a bright side for a certain subset of consumers–those who want better bankruptcy statistics, including the media, policy wonks, and academics. Much of the recent bankruptcy reform debate was a battle of numbers as illustrated by the debate about the misnamed and miscalculated $400 "bankruptcy tax." In a forthcoming University of Missouri symposium piece entitled "The Bright Side of BAPCPA," I take a look at the potential of the new law to shape the world of bankruptcy data collection and dissemination.

As part of my research, I learned that the GAO has missed a statutory deadline to produce a research report. Under section 230 of BAPCPA, the GAO was to produce a study on requiring trustees to report debtors to the Office of Child Support Enforcement. The report was due 270 days after BAPCPA’s enactment, yet GAO officials confirmed that the study has not even begun. Has bankruptcy slipped to the bottom of the GAO’s priority list now that Congress has taken it off the top of its agenda?

Apparently the GAO has made some progress on the reaffirmation study required by BAPCPA. Perhaps the best news in this regard is that they have interviewed Professors Michaela White and Marianne Culhane, authors of the leading academic study on reaffirmation. Hopefully, other government agencies doing post-BAPCPA research will seek collaborations with academics and other researchers. For our part as consumers of bankruptcy data, we should let the GAO and other agencies know that we care about the required reports and expect them to be timely and carefully executed.