Seeking Shelter in Personal Insolvency Law: Recession, Eviction, and Bankruptcy's Social Safety Net
| Author | Joseph Spooner |
| DOI | http://doi.org/10.1111/jols.12035 |
| Published date | 01 September 2017 |
| Date | 01 September 2017 |
JOURNAL OF LAW AND SOCIETY
VOLUME 44, NUMBER 3, SEPTEMBER 2017
ISSN: 0263-323X, pp. 374±405
Seeking Shelter in Personal Insolvency Law: Recession,
Eviction, and Bankruptcy's Social Safety Net
Joseph Spooner*
Many legal systems understand consumer insolvency laws as social
insurance, providing relief and a `fresh start' to over-indebted house-
holds who fall through gaps in the social safety net. Personal
insolvency law in England and Wales in practice functions similarly,
but in terms of legal principle and policy is ambivalent ± sometimes
emphasizing household debt relief, other times creditor wealth
maximization. This article assesses, in the context of novel debt prob-
lems brought to prominence by recession and austerity, the extent to
which the law has embraced personal insolvency's social insurance
function. The discussion is framed particularly by the escalating
United Kingdom housing crisis and the case of Places for People v.
Sharples concerning consumer bankruptcy's (non)protection of debtors
from eviction. The analysis illustrates how tensions between concep-
tual understandings and personal insolvency law's practical operation
undermine the law's ability to fulfil its potential to produce positive
policy responses to contemporary socio-economic challenges.
374
*Law Department, London School of Economics, Houghton St., London
WC2A 2AE, England
j.t.spooner@lse.ac.uk
I thank seminar participants at Kent Law School and LSE Law Department, where I
presented earlier versions, and staff at Melbourne Law School, where I visited while
writing this article. I thank particularly for comments and encouragement Ian Fletcher,
Iain Ramsay, David Milman, Susan Block-Lieb, Neil Duxbury, Nick Sage, five
anonymous reviewers, and Henrietta Zeffert. Any errors and omissions are mine.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
INTRODUCTION
Many legal systems understand consumer insolvency laws as a form of
social insurance.
1
The law's discharge of debt provides relief to financially
troubled households falling outside the social safety net and so operates as an
`insurer of last resort'. In England and Wales, personal insolvency law in
practice functions similarly, invoked by debtors of little income and few
assets to obtain respite from financial difficulty and creditor collection
efforts. As a matter of legal principle and policy, however, English law is
ambivalent in its acceptance of this view of personal insolvency law. Instead,
policy makers, judges, and commentators tend to divide the law's theoretical
basis between two primary objectives: debt collection and the maximization
of returns to creditors, as well as the provision of debt relief to over-indebted
individuals under the `fresh start' policy. Underpinning the first of these
aims is the view that insolvency law should involve `as few dislocations as
possible' from pre-bankruptcy market allocations.
2
The fresh start policy, in
contrast, understands that `[v]iewed in its proper context . . . the law of
personal insolvency functions as a mechanism of redistribution'.
3
Tension
exists between these `different and perhaps competing philosophical bases
for the one legal process'.
4
Since insolvency `legislation contains no
375
1 See, for example, T. Sullivan et al., As We Forgive Our Debtors: Bankruptcy and
Consumer Credit in America (1989) 333; A. Feibelman, `Defining the Social
Insurance Function of Consumer Bankruptcy' (2005) 13 Am. Bankruptcy Institute
Law Rev. 129; J. Niemi-Kiesilainen, `Consumer Bankruptcy in Comparison: Do We
Cure a Market Failure or a Social Problem' (1999) 37 Osgoode Hall Law J. 473; I.
Ramsay, `Models of Consumer Bankruptcy: Implications for Research and Policy'
(1997) 20 J. of Consumer Policy 269, at 278±82; J. Kilborn, `Comparative Cause and
Effect: Consumer Insolvency and the Eroding Social Safety Net' (2007) 14 Columbia
J. of European Law 563. This article refers widely to comparative literature, while
acknowledging that relevant differences in credit markets and borrowing practices
exist across jurisdictions. The author hopes it will be read with this in mind, though
without wishing to dampen the potential for comparative learning: see, for example,
I. Ramsay, `Comparative Consumer Bankruptcy' (2007) University of Illinois Law
Rev. 241; J. Ziegel, Comparative Consumer Insolvency Regimes: A Canadian
Perspective (2003); J. Spooner, `Fresh Start or Stalemate? European Consumer
Insolvency Law Reform and the Politics of Household Debt' (2013) 21 European
Rev. of Private Law 747. The author notes that some ideas explored in the article are
considered further in J. Spooner, The Law of Consumer Bankruptcy: A Critical
Approach (forthcoming). The article frequently uses the terms `bankruptcy' and
`insolvency' interchangeably, with the exception of specific references to English
law, where the bankruptcy procedure is one of four procedures together forming
personal insolvency law (alongside the Individual Voluntary Arrangement, Debt
Relief Notice, and County Court Administration Order procedures): see, for example,
I. Fletcher, The Law of Insolvency (2009, 4th edn.) part I.
2 T. Jackson, The Logic and Limits of Bankruptcy Law (1986) 253.
3 Fletcher, op. cit., n. 1, paras. 3-002.
4 P. Shuchman, `An Attempt at a Philosophy of Bankruptcy' (1973) 21 UCLA Law
Rev. 403, at 414.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
hierarchical system of priorities',
5
the appropriate `balance' between the
policy concerns is unclear.
6
This article argues that contemporary economic conditions present a
strong case for rebalancing the law towards the fresh start policy and its
social insurance function. The global financial crisis and subsequent great
recession
7
have spurred scholars and policy makers to recognize the negative
economic consequences of excessive household debt in triggering the crisis
and in prolonging subsequent recession.
8
Economists increasingly advocate
the merits of household debt-relief policies, though often seeing `no
economy-wide tools available for large-scale debt restructuring'.
9
Personal
insolvency is just such a tool, however, and this article links this post-crisis
debate with bankruptcy literature. It highlights the persuasive case for
deploying personal insolvency as a social insurance mechanism to address
`debt overhang' problems
10
and distribute more efficiently the risks inherent
in a debt-based economy.
The article illustrates, however, that the lack of clarity as to how to
balance the law's aims tends to obscure the public policy benefits of
deploying the law in this manner. It focuses on a stark illustration of the
problem in the Court of Appeal decision in Places for People Homes Ltd. v.
Sharples. Here a view of personal insolvency centred on creditor returns led
to failure to recognize the law's social policy function just as the need for an
`insurer of last resort' is particularly great, in the context of a contemporary
United Kingdom housing crisis and an environment of recession, austerity,
and a stretched social safety net. Recent years have seen households' debt
problems increasingly move from financial products to essential obligations
such as central and local government debts, as well as rent arrears difficulties
symptomatic of the housing crisis.
11
Perhaps surprisingly, scholars and
376
5 D. Milman, `The Challenge of Modern Bankruptcy Policy: The Judicial Response'
in Commercial Law & Commercial Practice, ed. S. Worthington (2003) 396.
6 C. Hallinan, `The Fresh Start Policy in Consumer Bankruptcy: A Historical
Inventory and an Interpretive Theory' (1986) 21 University of Richmond Law Rev.
49, at 144.
7 For a description of the period `popularly termed ``The Great Recession''', see, for
example, Kuttner's account of the post-crisis `prolonged slump': R. Kuttner,
`Foreword' in After the Great Recession: The Struggle For Economic Recovery And
Growth, eds. B. Cynamon et al. (2014) xiii. See, also, A. Turner, Between Debt and
the Devil: Money, Credit, and Fixing Global Finance (2015) 3.
8 Turner, id.; P. Bunn and M. Rostom, `Household Debt and Spending' (2014) Q3
Bank of England Q. Bulletin; A. Mian and A. Sufi, House of Debt (2014).
9 G. Vlieghe, `Debt, Demographics and the Distribution of Income: New Challenges
for Monetary Policy' (2016) 3, at <http://www.bankofengland.co.uk/publications/
Pages/speeches/2016/872.aspx>.
10 Mian and Sufi, op. cit., n. 8, pp. 135±51, 162±5; A. Levitin, `Resolving the
Foreclosure Crisis: Modification of Mortgages in Bankruptcy' (2009) Wisconsin
Law Rev. 565.
11 See, for example, London Assembly Economy Committee, Final Demand: Personal
Problem Debt in London (2015); StepChange Debt Charity, Council Tax Debts:
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
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