Seeking Shelter in Personal Insolvency Law: Recession, Eviction, and Bankruptcy's Social Safety Net

AuthorJoseph Spooner
DOIhttp://doi.org/10.1111/jols.12035
Publication Date01 Sep 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.
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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.
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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
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:
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policy makers have rarely travelled down the income distribution curve to
consider these `hidden'
12
debt problems.
13
Existing treatments of consumer
bankruptcy have tended to focus, for example, on credit card debt during the
boom of the 2000s
14
or the mortgage debt epidemic of the post-crisis crash.
15
Consequently, the law must now construct fresh responses to questions
pose d by suc h debt s' inc reasi ng sal ience and th e cont empo rary
environment's challenge to expand protection to those falling outside the
social safety net.
This article is an effort to advance this process. It interrogates the public
policy aims of personal insolvency law, informed by lessons from the crisis
and recession, and applies these ideas to a novel debt category through a case
study of the Sharples decision.
16
In so doing, it adds to long-standing
literature on bankruptcy's social insurance function and to current academic
enquiries into the `regulatory welfare state'
17
and problems of precarious
housing and eviction.
18
The article argues that a strong policy case exists for
titling the balance of personal insolvency law towards the fresh-start policy
and the law's social insurance role, even in the particular context of
protecting debtors from eviction. Such an approach, absent in English law as
represented by the Sharples case, is necessary to reconcile conceptual
understandings of the law with its practical operation, and to allow the law to
377
How to Deal with the Growing Arrears Crisis Tipping Families into Problem Debt
(2015); Money Advice Trust, Changing Household Budgets (2014). On austerity or
`fiscal consolidation' policies generally, see M. Blyth, Austerity: The History of a
Dangerous Idea (2013); W. St reeck, Buying Time: The Delayed Crisis o f
Democratic Capitalism (2014).
12 LSE Housing and Communities, Facing Debt: Economic Resilience in Newham
(2014) 19.
13 S. Ben-Ishai and S. Schwartz, `Bankruptcy for the Poor?' (2007) 45 Osgoode Hall
Law J. 471, at 473±4; S. Ben-Ishai et al., `The Role of Government as a Creditor of
the Disadvantaged' in Contemporary Issues in Consumer Bankruptcy, eds. W.
Backert et al. (2013) 201.
14 I. Ramsay, `Consumer Credit Society and Consumer Bankruptcy: Reflections on
Credit Cards and Bankruptcy in the I nformational Economy' in Consumer
Bankruptcy in Global Perspective, eds. J. Niemi-KiesilaÈinen et al. (2003) 17; R.
Mann, `Bankruptcy Reform and the Sweat Box of Credit Card Debt' (2007)
University of Illinois Law Rev. 375; T. Zywicki, `An Economic Analysis of the
Consumer Bankruptcy Crisis' (2004) 99 Northwestern University Law Rev. 1463.
15 International Monetary Fund (IMF), `Dealing with Household Debt' in World
Economic Outlook 2012 (2012) ch. 3; Bunn and Rostom, op. cit., n. 8; Levitin, op.
cit., n. 10; J. Taub, Other People's Houses (2014).
16 This approach responds to calls for recognition of the importance of legal doctrine in
household debt studies: K. Anderson, `The Explosive Global Growth of Personal
Insolvency and the Concomitant Birth of the Study of Comparative Consumer
Bankruptcy' (2004) 42 Osgoode Hall Law J. 661, at 675.
17 D. Levi-Faur, `The Welfare State: A Regulatory Perspective' (2014) 92 Public
Administration 599; H. Haber, `Regulation as Social Policy: Home Evictions and
Repossessions in the UK and Sweden' (2015) 93 Public Administration 806.
18 M. Desmond, Evicted: Poverty and Profit in the American City (2016).
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fulfil its potential in producing positive public policy responses to contem-
porary socio-economic challenges.
AMBIVALENCE OF AIMS IN PERSONAL INSOLVENCY LAW AND
POLICY
Many other jurisdictions recognize well the role of personal insolvency law
as part of the social safety net. In contrast to English law,
19
bankruptcy
procedures were inaccessible to consumers in many European jurisdictions
when a mass problem of household over-indebtedness first arose in the
1980s. This led to governments enacting a series of bespoke consumer debt-
adjustment laws,
20
which provided previously unavailable debt relief to
troubled households and `were seen as part of the welfare state protection'.
21
In France, for example, authors characterize the country's law as `un droit
social',
22
and several reforms there formed part of wider legislation targeting
social exclusion.
23
A seminal empirical study of the United States system
found that bankruptcy `must be understood within a broad range of social
support systems',
24
and that it is `clear that many lawyers see it just that
way'.
25
Contemporary American authors now describe `consumer bank-
ruptcy [as] one of the largest social insurance programs', providing more to
households than all state unemployment insurance programmes combined.
26
Even in Scotland, policy makers appear to conceptualize personal insolvency
law in welfare state terms, with recent reforms promising a national
`financial health service'.
27
378
19 English law extended bankruptcy to non-traders in 1861: see An Act to amend the
law relating to bankruptcy and insolvency in England, 24 & 25 Vict. C. 134; K.
Cork, Insolvency Law and Practice: Report of the Review Committee (1982) para.
42.
20 J. Kilborn, `Two Decades, Three Key Questions, and Evolving Answers in European
Consumer Insolvency Law: Responsibility, Discretion, and Sacrifice' in Consumer
Credit, Debt and Bankruptcy, eds. J. Niemi et al. (2009) 307.
21 Niemi-Kiesilainen, op. cit., n. 1, p. 481.
22 I. Ramsay, `A Tale of Two Debtors: Responding to the Shock of Over-Indebtedness
in France and England ± a Story from the Trente Piteuses' (2012) 75 Modern Law
Rev. 212, at 234.
23 Projet de loi d'orientation relative a
Ála lutte contre les exclusions (Projet de loi n
o
1055); Loi no 2003-710 du 1er aou
Ãt 2003 d'orientation et de programmation pour la
ville et la renovation urbaine.
24 Sullivan et al., op. cit., n. 1, p. 333.
25 T. Sullivan et al., The Fragile Middle Class: Americans in Debt (2000) 169.
26 W. Dobbie and J. Song, `Debt Relief and Debtor Outcomes: Measuring the Effects
of Consumer Bankruptcy Protection' (2015) 105 Am. Economic Rev. 1272, at 1272.
27 D. McKenzie-Skene, `Plus CËa Change, Plus C'est La Me
Ãme Chose? The Reform of
Bankruptcy Law in Scotland' (2015) 3 Nottingham Insolvency Business Law eJ. at
285, at 292.
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This article explores the extent to which one can see English personal
insolvency law in this manner, particularly as contemporary economic con-
ditions pressurize a shrinking social safety net and challenge the law to act as
a social insurer of last resort. In terms of express policy statements, English
law appears not to be fully committed to this view of the law. Rather, it
seems to adhere to a `firmly established tenet of time-worn bankruptcy lore
. . . that the bankruptcy system serves two functions: the protection and
payment of creditors; and the provision of shelter and a ``fresh start'' to
overburdened debtors.'
28
After an initial dominance of the debt collection
objective,
29
the history of the law's development has involved efforts to seek
`an appropriate balance of bankruptcy's collection and debtor rehabilitation
goals'.
30
The precise calibration of this balance has varied at different historical
moments.
31
A landmark in establishing debt relief as `a legitimate indepen-
dent objective'
32
was bankruptcy law's introduction in 1976 of automatic
debt discharge on completion of the insolvency process,
33
independent of
creditor consent or returns to creditors.
34
This objective was advanced
further by the Insolvency Act 1986, which reduced the debtor's waiting
period for discharge to just three years.
35
This reform followed a key policy
report that recognized the fresh-start principle as a basic aim of insolvency
law.
36
More recent policy developments have tilted the balance ever further
towards this aim, while nonetheless reiterating the importance of debt
collection. The Enterprise Act 2002 advanced the fresh-start policy
37
by
reducing the discharge waiting period to just 12 months.
38
It also replaced
the automatic restrictions and disqualifications previously applicable to all
379
28 Hallinan, op. cit., n. 6, p. 50. See, also, E. Warren, `A Principled Approach to
Consumer Bankruptcy' (1997) 71 Am. Bankruptcy Law J. 483, at 483; I. Fletcher,
`Bankruptcy Law Reform: The Interim Report of the Cork Committee, and the
Department of Trade Green Paper' (1981) 44 Modern Law Rev. 77, at 81.
29 M. Howard, `A Theory of Discharge in Consumer Bankruptcy' (1987) 48 Ohio State
Law J. 1047, at 1049; C. Tabb, `The Historical Evolution of the Bankruptcy
Dischar ge' (1991) 65 A m. Bankruptc y Law J. 325; A.J. D uncan, `Fro m
Dismemberment to Discharge: The Origins of Modern American Bankruptcy
Law' (1995) 100 Commercial Law J. 191.
30 Howard, id., p. 1082. See, also, D. Skeel, Debt's Dominion?: A History of
Bankruptcy Law in America (2001) 210.
31 McKenzie-Skene, op. cit., n. 27, p. 297.
32 Hallinan, op. cit., n. 6, p. 60; English law eliminated the creditor consent condition
in 1842 (5 & 6 Vict., c. 122, s. 39 (1842)), but reintroduced it in 1869 (32 & 33
Vict., c. 71, s. 48 (1869)). It was revoked in 1883 but replaced by a system of
limited, conditional, and suspended debt discharges: Tabb, op. cit., n. 29, p. 354.
33 Insolvency Act 1976, ss. 7±8; I. Fletcher, Law of Bankruptcy (1978) 308±9.
34 Duncan, op. cit., n. 29, p. 199; Tabb, op. cit., n. 29, p. 337.
35 Insolvency Act 1986, s. 279.
36 Cork, op. cit., n. 19, p. 192.
37 See, especially, The Insolvency Service, Bankruptcy: A Fresh Start (2000).
38 Enterprise Act 2002, s. 256, substituting Insolvency Act 1986, s. 279.
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bankrupts with a narrower system of sanctions for culpable debtors.
39
Policy
makers expressly justified these reforms by reference to the `fresh start' or
`second chance' philosophy, arguing that a more lenient debt discharge
would facilitate entrepreneurship by encouraging business risk-taking.
40
Nonetheless, policy makers emphasized the idea that debtors who `can pay,
should pay' as a `key element of our bankruptcy system'.
41
Reforms simul-
taneously enhanced procedures requiring bankrupt debtors to contribute
income to creditors for up to three years.
42
Similar balance was evident in
proposals by the government Insolvency Service agency to modernize the
Individual Voluntary Arrangement (IVA) insolvency procedure, which
recognized both the need `to support the concept of a fresh start' and `to
ensure the debtor pays the maximum affordable contribution'.
43
The
introduct ion of the Debt Relie f Order procedure ( DRO) in 2009
44
represented a more complete evolution. As confirmed by the courts, `the
purpose of the DRO scheme is unadulterated debt relief',
45
and it involves no
contributions to creditors from the debtor's assets/income. Instead, low-
income debtors with very few assets owing limited amounts of debt simply
obtain initial provisional protection from enforcement for one year, followed
by full discharge of all non-excluded debts.
46
Even in proposing this means-
tested mechanism, policy makers reiterated `that people who can pay . . .
should do', and indicated that the bankruptcy procedure would ensure
debtors of greater means make repayments to creditors.
47
The Insolvency
Service's 2014 Call for Evidence further exemplifies this disunity of
purpose. It considered concurrently a loosening of the restrictive means-
based DRO access conditions (thus expanding debt relief), and amendments
380
39 id., s. 257, Schd. 20, inserting Insolvency Act 1986, s. 281A, Schd. 4A.
40 The Insolvency Service and the Department for Trade and Industry (DTI), Produc-
tivity and Enterprise: Insolvency ± A Second Chance (2001).
41 id., para. 1.9.
42 Enterprise Act 2002, s. 260, inserting Insolvency Act 1986, s. 310A.
43 Insolvency Service, Improving Individual Voluntary Arrangements (2005) paras. 13,
21. For insight into the IVA procedure, see A. Walters, `Individual Voluntary
Arrangements: A ``Fresh Start'' for Salaried Consumer Debtors in England and
Wales' (2009) 18 International Insolvency Rev. 5.
44 See Tribunals Courts and Enforcement Act 2007, ch. 5, Part 3, Schds. 18±19;
Insolvency Act 1986, Part VIIA, Schds. 4ZA-4ZB; Insolvency Service, Relief for
the Indebted ± An Alternative to Bankruptcy (2005); Department of Constitutional
Affairs (DCA), A Choice of Paths: Better Options to Manage Over-indebtedness
and Multiple Debt (2004).
45 R (Cooper and Payne) v. Secretary of State for Work and Pensions, Court of
Appeal, England and Wales [2010] EWCA Civ. 1431, [2011] BPIR 223 para. 85,
per Toulson LJ.
46 A debtor can be sanctioned and subjected to the suspension of her discharge in the
event of misconduct.
47 Insolvency Service, op. cit., n. 44, pp. 2, 3.
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to the bankruptcy cr editor petition procedur e that left unquestioned
bankruptcy's status as the `strongest of debt recovery tools'.
48
Policy makers thus continue to view the law as serving simultaneously the
aims of maximizing returns to creditors and offering debtors a fresh start,
while enacting recent reforms that have increasingly recognized the latter
objective. The difficulty with this position is that many policy decisions and
litigated questions involve a direct choice between these two aims, creating
tension and risking the law's failure to achieve one or both objectives. In
order to reconcile these aims and to evaluate where the law's priority should
lie, it is necessary to interrogate the theoretical underpinnings of each
objective. The article now proceeds to do this, arguing that lessons from both
the great recession and the contemporary practice of personal insolvency law
undermine key assumptions of the debt collection objective, suggesting
public policy benefits to tilting the law's balance towards debt relief and
embracing its social insurance function.
DEVELOPING A HIERARCHICAL SYSTEM OF PRIORITIES IN
CONTEMPORARY PERSONAL INSOLVENCY LAW AND POLICY
1. Personal insolvency and creditor wealth maximization
Certain commentators describe the `standard justification for bankruptcy'
49
as being to serve the objective of debt collection or maximizing returns to
creditors. Sharing much with classical contract law theory,
50
this view
founds itself on neo-classical economic ideas, which adhere closely to the
efficient market hypothesis and see the law's role as supporting the market's
production of efficient resource allocation. The law should define property
rights,
51
establish ground rules for the free transfer of these rights,
52
and
enforce contractual bargains in order to protect market expectations.
53
Bankruptcy law becomes an extension of contract law in its fundamental
objective of upholding market bargains to the greatest extent possible. This
position is clear in Professor Jackson's `creditors' bargain' model, which
381
48 Insolvency Service, foreword to Insolvency Proceedings: Debt Relief Orders and
the Bankruptcy Petition Limit: Call for Evidence (2014).
49 A. Walters, `Personal Insolvency Law after the Enterprise Act: An Appraisal'
(2005) 5 J. of Corporate Law Studies 65, at 69.
50 See, for example, R. Brownsword, Contract Law: Themes for the Twenty-First
Century (2006, 2nd edn.) 46±7; P. Atiyah, The Rise and Fall of Freedom of Contract
(1979); M. Trebilcock, The Limits of Freedom of Contract (1997) 9±15.
51 Trebilcock, id.; M. Stearns and T. Zywicki, Stearns and Zywicki's Public Choice
Concepts and Applications in Law (2009) 18.
52 Trebilcock, id., pp. 9, 15±17.
53 G. Howells and S. Weatherill, Consumer Protection Law (2005, 2nd edn.) 8.
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scholars regard as the most notable unified theory of bankruptcy law.
54
Here
`the basic role of bankruptcy law is to translate relative values of non-
bankruptcy entitlements into bankruptcy's collective forum with as few
dislocations as possible.'
55
In this view, bankruptcy primarily addresses a
collective action problem of the `tragedy of the commons', as multiple
creditors compete to enforce unilaterally their market entitlements from a
single pool of the insolvent debtor's limited resources. Bankruptcy law then
provides a solution to which creditors hypothetically would agree, by offer-
ing a collective procedure of compulsory cooperation.
56
All creditors benefit
from the `bargain' of the law's stay on individual creditor enforcement
efforts, centralized acquisition and sharing of information regarding a
debtor's assets, and distribution of these assets' liquidated proceeds among
creditors on a pro rata basis.
57
Thus, the stay of enforcement actions or
moratorium
58
represents the core of the c reditors' bargain. It gives
bankruptcy law its key collective nature, preventing individual advantage-
taking
59
and preserving equality of creditors. Debt discharge is justified
under this perspective only as a means of encouraging debtors to cooperate
in liquidating assets for creditors' benefit. Pro rata distribution of the
debtor's assets among creditors supports market allocations, `because it
mimics the value of [creditors'] expected positions immediately before
bankruptcy.'
60
By facilitating predictable pro rata recovery (rather than the
unpredictable outcome of case-by-case races-to-court), insolvency law
should assist business planning, reduce wasteful creditor competition, and
produce more accurate and lower pricing of credit.
61
Ultimately, therefore,
the case for maximizing returns to creditors rests on the belief that this will
allow credit to be most widely available at the lowest cost, and faith that this
equates with an efficient allocation of resources.
2. The fresh-start policy and personal insolvency as social insurance
This position rests on assumptions regarding market efficiency, however,
which struggle to hold in the face of contemporary conditions in consumer
credit markets. The market failure rationale justifies personal insolvency's
382
54 A. Levitin, `Bankrupt Politics and the Politics of Bankruptcy' (2011) 97 Cornell
Law Rev. 1 399, at 1404 ±5; R. Moka l, `The Auth entic Cons ent Model :
Contractarianism, Creditor's Bargain, and Corporate Liquidation' (2001) 21 Legal
Studies 400, at 401±2.
55 Jackson, op. cit., n. 2, p. 253.
56 id., pp. 10±14.
57 V. Finch, Corporate Insolvency Law: Perspectives and Principles (2009, 2nd edn.)
32±7.
58 See Insolvency Act 1986, s. 285.
59 Stearns and Zywicki, op. cit., n. 51, pp. 13±14.
60 Jackson, op. cit., n. 2, pp. 30±1; J. Kilpi, The Ethics of Bankruptcy (1998) 14±15.
61 Jackson, id., pp. 14±16.
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provision to debtors of relief from sub-optimal bargains produced by
imperfect consumer credit markets.
62
Information asymmetries between
lenders and borrowers and behavioural biases of consumers will system-
atically produce inefficient credit contracts.
63
The resulting severe costs of
over-indebtedness are not just borne by parties to credit transactions but also
by third parties, meaning that rather than enforce market allocations,
personal insolvency has a role to play in internalizing negative externalities.
These social costs are multifarious, including for example expense to state
social welfare systems in providing for financially troubled households'
basic needs.
64
The recognized links between debt and health problems mean
that mass over-indebtedness may also burden healthcare systems.
65
The
`most powerful driving concerns'
66
of policy makers are wider systemic
macro-economic costs of over-indebtedness. Debt problems may reduce
employees' economic productivity, pushing debtors from the workforce
either by making work uneconomical or through health problems that render
employees unfit for work.
67
Similarly, English
68
and EU policy makers
69
have seen debt-relief laws as important facilitators of entrepreneurial
productivity, safety nets that facilitate the risk-taking necessary for business
383
62 Mian and Sufi, op. cit., n. 8, pp. 137±9. Personal insolvency law is not a perfect
response to such market problems, as it affects the rights of all creditors, not just
those engaging in risky practices: W. Whitford, `The Ideal of Individualized Justice:
Consumer Bankruptcy as Consumer Protection, and Consumer Protection in
Consumer Bankruptcy' (1994) 68 Am. Bankruptcy Law J. 397, at 401, 403. It
therefore fits alongside more targeted regulatory measures, both in deterring future
inappropriate creditor conduct and in providing often the only practical form of ex
post consumer redress. See, also, U. Reifner et al., Overindebtedness in European
Consumer Law: Principles from 15 European States (2010) 50±1.
63 See, generally, R. Mann, `Optimizing Consumer Credit Markets and Bankruptcy
Policy' (2006) 7 Theoretical Inquiries in Law 395; O. Bar-Gill and E. Warren,
`Making Credit Safer' (2008) 157 University of Pennsylvania Law Rev. 1; L. Willis,
`Will the Mortgage Market Correct ± How Households and Communities Would
Fare If Risk Were Priced Well' (2008) 41 Connecticut Law Rev. 1177.
64 Reifner et al., op. cit., n. 62, p. 62.
65 S. Emami, `Consumer Over-Indebtedness and Health Care Costs: How to Approach
the Question from a Global Perspective' in WHO World Health Report (2010); N.
Balmer et al., `Worried Sick: The Experience of Debt Problems and their Relation-
ship with Health, Illness and Disability' (2006) 5 Social Policy and Society 39.
66 World Bank, Report on the Treatment of the Insolvency of Natural Persons (2013)
para. 77.
67 id., paras. 102±5; Jackson, op. cit., n. 2, p. 244; Hallinan, op. cit., n. 6, p. 119. Recent
empirical research finds better employment and income outcomes for United States
debtors accessing bankruptcy protection compared to those refused access: Dobbie
and Song, op. cit., n. 26, pp. 1792±7. One United Kingdom study finds strong links
between households being in debt and leaving paid employment: E. Kempson et al.,
Characteristics of Households in Debt and the Nature of Indebtedness (2004) 5.
68 Insolvency Service; DTI, op. cit., n. 40; Insolvency Service, op. cit., n. 37.
69 European Commission, `Commission Recommendation of 12.3.2014 on a New
Approach to Business Failure and Insolvency' (2014).
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
activity.
70
In contemporary conditions in which consumer demand is
essential to economic growth, this logic suggests debt relief laws are equally
necessary to restore over-indebted consumers to economically productive
positions in which they can resume spending.
71
In response to the great
recession, academic authors and international organizations have increas-
ingly re cognized t he `debt ove rhang' pro blem of house hold over-
indebtedness's disastrous effects on aggregate demand and so, on economic
growth.
72
The `harshness of debt' inflicts losses of an economic downturn on
borrowers (as employment, incomes, and home values fall), while leaving
creditors untouched, with claims to full loan repayment and recourse to
security.
73
As borrowers are the members of society with the highest
marginal propensity to consume, debt's distribution of losses onto borrowers
leads to dramatic falls in consumption, triggering economic downturn. This
calls for policies to redistribute losses more evenly, through contractual loss-
sharing mechanisms and expansive debt relief laws,
74
in order to restore
debtors' ability to engage in growth-facilitating consumption.
75
The great recession's lesson that `debt matters' to economic growth and
stability,
76
and that the inherent risks of a debt-based economy must be
redistributed more efficiently, heightens understanding of personal insol-
vency law as a form of socio-economic or social insurance.
77
Bankruptcy
satisfies economic definitions of insurance, transferring risk from debtors
(the insured) to creditors (insurers) through the discharge of debt, with
debtors paying a risk-adjusted premium in the form of an interest rate.
78
By
discharging consumer debts, the law redistributes costs of over-indebtedness
from consumer debtors (and third parties who bear costs where debtors do
not self-insure) to institutional creditors, who represent the party better able
both to prevent default from occurring (through creditworthiness assess-
ments and underwriting practices) and to bear the costs of default (as
discussed further below). This allows the social costs of credit markets to be
efficiently spread and internalized, and incentivizes creditors to reduce the
incidence of default and over-indebtedness.
More practically, one could understand bankruptcy as functionally acting
384
70
See, also, J. Czarnetzky, `The Individual and Failure: A Theory of the Bankruptcy
Discharge' (2000) 32 Arizona State Law J. 393; World Bank, op. cit., n. 66, pp. 106±10.
71 IMF, op. cit., n. 15, pp. 1±3, 7±8; Mian and Sufi, op. cit., n. 8.
72 Mian and Sufi, id.; Bunn and Rostom, op. cit., n. 8; Turner, op. cit., n. 7.
73 Mian and Sufi id., pp. 18±19.
74 IMF, op. cit., n. 15; World Bank, op. cit., n. 66.
75 Mian and Sufi, op. cit., n. 8, pp. 135±51, 167±87.
76 Vlieghe, op. cit., n. 9, p. 2.
77 Hallinan, op. cit., n. 6, pp. 98±109; Jackson, op. cit., n. 2, pp. 229±32; T. Eisenberg,
`Bankruptcy Law in Perspective' (1980) 28 UCLA Law Rev. 953, at 981±3; R.
Hynes, `Non-Procrustean Bankruptcy' (2004) University of Illinois Law Rev. 301, at
327±31.
78 Feibelman, op. cit., n. 1, p. 130.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
as social insurance, filling gaps left by the welfare state.
79
Though the
continued vital role of the existing social welfare system should not be
understated, the dramatic rise in household debt of recent decades has
corresponded to a period of reduced welfare provision, as well as increased
income inequality and stagnation of wage growth for middle and working
classes.
80
These trends have involved a substitution of `loans for wages'
81
and official promotion of borrowing as a means of sustaining economic
demand
82
and of smoothing consumption in a manner analogous to
traditional welfare state provision.
83
Reduced social spending has seen the
financialization of welfare and the increasing role of the market, rather than
the state, in addressing citizens' social needs.
84
Evidence from the Great
Recession shows households borrowing to counter austerity policies'
reduction of social welfare provision,
85
while significant increases in high-
cost payday lending in the United Kingdom
86
illustrate further this sub-
stitution of private debt for public debt.
87
Debt is also used to access
`essential services no longer provided by the welfare state',
88
including
housing and pension provision.
89
Household credit then becomes the
`ultimate market-based social welfare program'.
90
This ex ante borrowing
exposes heavily leveraged households to greater vulnerability ex post in the
event of an `income shock' or social force majeure that typically leads to
over-indebtedness ± job loss, wage reduction, relationship breakdown, or ill
health.
91
These `life accidents' are of the kind against which the welfare state
385
79 J. Braucher, `Response to Eric Posner' (2001) 7 Fordham J. of Corporate &
Financial Law 463, at 466.
80 P. Lucchino and S. Morelli, Inequality, Debt and Growth (2012); J. Wisman, `Wage
Stagnation, Rising Inequality and the Financial Crisis of 2008' (2013) 37 Cambridge
J. of Economics 921; Turner, op. cit., n. 7, pp. 119±24.
81 A. Barba and M. Pivetti, `Rising Household Debt: Its Causes and Macroeconomic
Implications ± a Long-Period Analysis' (2009) 33 Cambridge J. of Economics 113.
82 C. Crouch, `Privatised Keynesianism: An Unacknowledged Policy Regime' (2009)
11 Brit. J. of Politics & International Relations 382.
83 J. Hills, Good Times, Bad Times: The Welfare Myth of Them and Us (2014) 49±61.
84 G. Gloukoviezoff, Unde rstanding and Combat ing Financial Exclusi on and
Overindebtedness in Ireland: A European Perspective (2011) 44±5.
85 E. Herden, A. Power, and B. Provan, Is Welfare Reform Working? Impacts on
working age tenants (2015) 5±6, 12.
86 See Office of Fair Trading, Payday Lending: Compliance Review Final Report
(2013).
87 Barba and Pivetti, op. cit., n. 81, pp. 129±31.
88 S. Soederberg, Debtfare States and the Poverty Industry: Money, Discipline and the
Surplus Population (2014) 89.
89 J. Montgomerie and M. Bu
Èdenbender, `Round the Houses: Homeownership and
Failures of Asset-Based Welfare in the United Kingdom' (2015) 20 New Political
Economy 386.
90 Sullivan et al., op. cit., n. 25, p. 138.
91 European Commission et al., Towards A Common Operational European Definition
of Over-Indebtedness (2008) 23±4.
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traditionally protects. Privatization and the state's promotion of market
provision in lieu of social spending transform the state from service provider
to regulator,
92
and create a `regulatory welfare state'.
93
Regulatory norms
and legal protections, such as personal insolvency law, accordingly must
provide a `safety net of last resort', when the net of the traditional welfare
state has failed.
94
These analyses suggest that developments in economic and social policy
over past decades, accelerated by recent conditions of recession and
austerity, present a clear and urgent policy case for personal insolvency to
function as insurance against the risks of excessive debt, both at the
individual and aggregate levels. This calls on the law to be expansive in its
discharge of debt and, most relevantly to the subsequent discussion, in the
protection offered by its stay of enforcement, `the linchpin of bankruptcy
relief'.
95
3. Objections to personal insolvency's social insurance function
While at least part of the above analysis regarding the economic costs of
household over-indebtedness may be widely accepted, two key objections
tend to oppose the complete embrace of debt relief and adoption of the law's
social insurance function. The first worries that debtors will abuse any
system of debt relief, while the second cautions that such a system will raise
the costs of, and reduce access to, credit.
96
Both of these are common
concerns regarding consumer protection and social insurance measures
generally,
97
mirroring the classic reactionary argument that reforms will
produce opposite effects to those intended by policy makers.
98
When
interrogated, however, these objections do not undermine the case for
accepting personal insolvency law's social insurance role.
(a) Moral hazard
The first argument against household debt relief measures cautions that
debtors will abuse generous laws, over-borrowing and subsequently escaping
386
92 Ramsay, op. cit., n. 22, p. 247.
93 Haber, op. cit., n. 17.
94 id., pp. 817±19.
95 J. Kilborn, `Mercy, Rehabilitation, and Quid Pro Quo: A Radical Reassessment of
Individual Bankruptcy' (2003) 64 Ohio State Law J. 855, at 893.
96 E. Posner, `Comment on Means Testing Consumer Bankruptcy by Jean Braucher'
(2001) 7 Fordham J. of Corporate & Financial Law 457, at 458±9.
97 Kilborn, op. cit., n. 1, p. 595.
98 A. Hirschman, The Rhetoric of Reaction: Perversity, Futility, Jeopardy (1991) 11.
Baker notes that moral hazard is used similarly to caution against `the perverse
consequences of well-intentioned efforts to share the burdens of life': T. Baker, `On
the Genealogy of Moral Hazard' (1996) 75 Texas Law Rev. 237, at 239.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
their credit obligations. This raises the issue of moral hazard,
99
the risk that
the availability of insurance against loss (debt discharge) will reduce the
insured's (debtor's) incentives to take steps to prevent default (that is,
borrowing responsibly and striving to overcome financial difficulties).
100
Often overlooked, however, is the fact that moral hazard's original `sig-
nificance lay not in the recognition that insurance could have undesirable
consequences . . . but instead in the claim that the undesirable consequences
could be controlled.'
101
Similarly, personal insolvency systems can use this
concept as a guide in designing the law with sufficient safeguards and
sanctions `to isolate and exclude debtors who engage in excessively risky or
other undesirable credit behaviour.'
102
While the social insurance view of
bankruptcy sees the availability of debt relief as welfare enhancing, it sees an
important need to attach conditions to raise the cost of debt relief (just as
insurance policies include deductibles to ensure insured risks are not cost-
less). These include limitations on debtor access (as seen above in relation to
the DRO procedure), investigation and potential sanction of culpable
debtors, and the debtor's sacrifice to creditors of non-essential income and
assets. Thus, the social insurance conception of insolvency retains a role for
debt collection, but as a means of guarding against moral hazard, rather than
an end in itself. In this light, requiring debtors to undergo a personal
insolvency procedure appears more as a solution to, rather than a cause of,
moral hazard problems posed by household debt relief policies.
103
(b) `Lenders should feel able to advance money'
A second perennial objection to introducing debtor-friendly law reforms is
the claim that they will increase the cost of, and reduce access to, household
credit.
104
Examples abound of policy makers, judges, and commentators
105
expressing assumptions that laws that maximize returns to creditors, and
particularly protect banks, enhance welfare in allowing creditors to supply
credit widely at low prices.
106
The belief that it is `important that lenders
387
99 Baker id.; J.E. Stiglitz, `Risk, Incentives and Insurance: The Pure Theory of Moral
Hazard' (1983) 8 Geneva Papers on Risk and Insurance ± Issues and Practice 4.
100 Hallinan, op. cit., n. 6, pp. 84, 92, 103; Hynes, op. cit., n. 77, p. 329; Feibelman, op.
cit., n. 1, pp. 136±7.
101 Baker, op. cit., n. 98, p. 240.
102 World Bank, op. cit., n. 66, para. 114.
103 See, for example, Levitin, op. cit., n. 10, pp. 640±7.
104 J. Goodman and A. Levitin, `Bankruptcy Law and the Cost of Credit: The Impact of
Cramdown on Mortgage Interest Rates' (2014) 57 J. of Law and Economics 139, at
139±42; Taub, op. cit., n. 15, pp. 117±18.
105 For examples of such views among scholars, see, for example, F. McIntyre et al.,
`Lawyers Steer Clients Toward Lucrative Filings: Evidence from Consumer
Bankruptcies' (2015) 17 Am. Law and Economics Rev. 245, at 278, 280; S. Nield,
`Responsible Lending and Borrowing: Whereto Low-Cost Home Ownership' (2010)
30 Legal Studies 610.
106 Mian and Sufi, op. cit., n. 8, pp. 119±33.
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should feel able to advance money'
107
approaches the status of an article of
faith in an English private law alleged to demonstrate an `enduring pro-
creditor bias'.
108
In the context of the `debt overhang' problem discussed
above, typical arguments that the `sky will fall'
109
if creditors' rights are
unduly restricted raise a more nuanced question: whether a reduction in
supply of cheap household credit would cause greater harm to economic
activity than the fall in demand caused by overly leveraged households'
declining consumption.
It is precisely this point that contemporary commentators refute when
arguing that the severity of the great recession indeed resulted from policy
makers allowing losses to fall on debtors and `behaving as if the preservation
of bank creditor and shareholder value is the only policy goal.'
110
Moving
from this more general claim to the direct impact of bankruptcy on credit
supply, empirical evidence is `surprisingly limited . .. given the centrality of
[this point] to policy debates about bankruptcy reform.'
111
Some studies
produce ambiguous results,
112
while others find small increases in mortgage
prices attributable to differences in bankruptcy laws.
113
Yet more conclude
that in modern securitized, diversified credit markets, `the scope of the
bankruptcy discharge has very little impact on the price or availability of
credit except at the margins.'
114
Creditors `can spread, diversify and hedge
investments to minimise total portfolio risk' in a manner unavailable to
individual debtors,
115
for whom an adverse financial event will most likely
be uninsured
116
and can prove catastrophic.
117
Financial creditors are regu-
lated entities, obliged to hold capital reserves designed to protect against
such losses. The United Kingdom's estimated 8.8 million over-indebted
people
118
and the £2.75 billion in non-mortgage debt charged off by lenders
388
107 Royal Bank of Scotland Plc v. Etridge (No 2) [2001] UKHL 44, [2002] 2 A.C. 773,
para. 2, per Lord Nicholls. In this decision, Lord Hobhouse criticized this trend,
arguing at para. 115 that `[t]he law has, in order to accommodate the commercial
lenders, adopted a fiction which nullifies the equitable principle [of undue influence]
and deprives vulnerable members of the public of the protection which equity gives
them.'
108 L. Fox O'Mahoney et al., `England and Wales' in Regulating Unfair Banking
Practices in Europe: the Case of Personal Suretyships, eds. A. Colombi Ciacchi and
S. Weatherill (2010) 170.
109 L. Lupica, `The Consumer Debt Crisis and the Reinforcement of Class Position'
(2008) 40 Loyola University Chicago Law J. 557, at 604.
110 Mian and Sufi, op. cit., n. 8, pp. 133, 46±59.
111 Goodman and Levitin, op. cit., n. 104, p. 141.
112 T. Durkin et al., Consumer Credit and the American Economy (2014) 613±14.
113 Goodman and Levitin, op. cit., n. 104.
114 Levitin, op. cit., n. 10, pp. 601±2.
115 Willis, op. cit., n. 63, p. 1182.
116 Mian and Sufi, op. cit., n. 8, pp. 46±59.
117 World Bank, op. cit., n. 66, para. 95.
118 Money Advice Service, Indebted Lives: The Complexities of Life in Debt (2013).
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
annually
119
mean that losses attributable to England and Wales's 80,000
annual personal insolvencies
120
reflect only a small portion of total defaults.
These observations suggest that losses to creditors caused by providing
greater debt relief in personal insolvency law should reduce lender economic
activity (that is, credit supply) to a lesser extent than the denial of relief will
affect over-indebted individuals' behaviour (that is, consumer spending),
particularly bearing in mind debtors' higher marginal propensity to consume.
A key insight of insurance theory, that the law can produce efficient
outcomes by allocating losses onto the party best placed to bear loss and to
prevent relevant risks from occurring,
121
therefore supports debt relief as an
efficient transfer of costs onto creditors. A further lesson from the great
recession is that shifting losses onto debtors may in fact reduce credit flows
by stifling demand, since a two-sided market view shows that boom-time
borrowers will have little appetite for credit when economic conditions
deteriorate.
122
A more fundamental problem with this typical objection to debt relief is
its assumption, foundational to ubiquitous pre-crisis `democratisation of
credit' policies,
123
that wide access to cheap credit is necessarily welfare
enhancing. The contribution of excessive household debt to the financial
crisis, and the effect of the consequent `debt overhang' problem in inducing
recession, has led many commentators to doubt this assumption and argue
`less finance can be better'.
124
This recognition of the need for caution
regarding the wide supply of debt at a price concealing its true social costs
125
builds on the pre-crisis emergence of the regulatory principle of responsible
lending.
126
Considering these ideas, personal insolvency's role may be
precisely to reduce debt flows and ensure that credit markets' costs are
internalized through truer pricing, rather than to enforce market bargains
blindly. In this way, those outcomes feared by opponents of debt relief
should actually benefit the wider economy, while also providing valuable
389
119 Bank of England, Bankstats (Monetary & Financial Statistics) ± Latest Tables, at
.
120 Insolvency Service, Insolvency Statistics ± October to December 2015 (Q4 2015)
(2016).
121 World Bank, op. cit., n. 66, pp. 94±8; Eisenberg, op. cit., n. 83, p. 981; R. Posner and
A. Rosenfield, `Impossibility and Related Doctrines in Contract Law: An Economic
Analysis' (1977) 6 J. of Legal Studies 83.
122 See, for example, Bunn and Rostom, op. cit., n. 8.
123 Soederberg, op. cit., n. 88, pp. 61±5.
124 Turner, op. cit., n. 7, p. 17; Mian and Sufi, op. cit., n. 8, p. 127.
125 Mian and Sufi, id., p. 182.
126 See, for example, I. Ramsay, `From Truth in Lending to Responsible Lending' in
Information R ights and Obligation s: The Impact on Party Aut onomy and
Contractual Fairness, eds. A. Janssen and G. Howells (2005) 47; K. Fairweather,
`The Development of Responsible Lending in the UK Consumer Credit Regime' in
Consumer Credit, Debt and Investment in Europe, eds. J. Devenney and M. Kenny
(2012) 84.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
over-indebtedness insurance for which individual debtors may be happy to
pay.
127
4. No commons, just tragedy: maintaining personal insolvency's debt
collection objective when there is nothing left to collect
The contemporary conditions of personal insolvency law's operation provide
a final, compelling, factor in favour of understanding personal insolvency
law as a form of social insurance and of emphasizing its debt relief aim. All
Debt Relief Order cases and the vast majority of bankruptcies involve
consumer debtors (Figure 1) seeking protection by voluntarily initiating
proceedings, rather than creditors coercively petitioning for bankruptcy in
order to collect debts (Figure 2).
128
In fact, it is precisely those debtors
unwilling or unable to make repayments to creditors who use the bankruptcy
and DRO procedures. Other options such as the IVA procedure or non-
statutory Debt Management Plans (DMPs) are available to debtors able to
make part-repayments. The steering effects of intermediaries providing these
arrangements
129
mean that debtors with saleable assets or available income
(to pay both creditors' debts and intermediaries' fees) are less likely to enter
bankruptcy.
130
As a result, all DRO debtors and most bankruptcy debtors
have few if any non-essential assets available for distribution to creditors
(Figure 3).
Irrespective of the theoretical conception of bankruptcy, given that the
debtor now usually lacks assets and income for recovery to creditors, the
`predominant purpose ± if not the sole purpose ± of individual bankruptcy
today is to effect the discharge of debts ± to give the debtor a ``fresh
start''.'
131
There is simply nothing left to collect in any bankruptcies bar a
small unrepresentative minority of high-value cases. Personal insolvency law
may once have operated alongside corporate insolvency law as a commercial
law designed to recover returns to investors from failed business debtors. It
now operates, however, as a social welfare law or `law of hardship'.
132
Stakeholders working with the law recognize this, with debt charities
390
127 Goodman and Levitin, op. cit., n. 104, pp. 156±7.
128 The split personality of English personal insolvency law means that this small
minority of `involuntary' bankruptcies nonetheless remains higher than equivalent
rates in jurisdictions such as the United States: J. Kilborn and A. Walters,
`Involuntary Bankruptcy As Debt Collection: Multi-Jurisdictional Lessons in
Choosing the Right Tool for the Job' (2013) 87 Am. Bankruptcy Law J. 123, at
124±5.
129 Financial Conduct Authority (FCA), Quality of Debt Management Advice (2015).
130 Approximately 10±20 per cent of bankruptcy debtors have sufficient income to be
required to contribute to creditors: Insolvency Service, Insolvency Statistics: April to
June 2016 (2016).
131 Kilborn, op. cit., n. 95, p. 866.
132 Braucher, op. cit., n. 79, p. 463.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
viewing insolvency mechanisms as a `lifeline'
133
for impoverished clients
and part of a `debt solutions landscape',
134
rather than legal or judicial
processes.
135
Similarly, in its recent review of this landscape, the Financial
Conduct Authority treated `insolvency/statutory solutions' as just one of
many wide-ranging `opt ions for dealing with problem deb t'.
136
The
specialist credit regulator positioned bankruptcy at one end of a spectrum
of options, many of which are indisputably welfarist in nature, such as `help
with budgeting'. Viewed in this light, it is easier to see `consumer insolvency
391
Figure 1. Bankruptcies in England and Wal es by consumer/self-
employed status, 1990±2015
Source: Insolvency Service
133 Christians Against Poverty, A Guide to the CAP's Official Response to the
Insolvency Service's Call for Evidence (2014) 3.
134 Money Advice Trust, Money Advice Trust Consultation Response: Insolvency
Service ± DROs and the Bankruptcy Petition Limit (2014) 4.
135 Contrast with the High Court's view of the DRO procedure as a judicial process in
Howard, R (on the application of) v. The Official Receiver [2013] EWHC 1839
(Admin), [2014] QB 930.
136 FCA, op. cit., n. 129, para. 2.13.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
law [as] a new member of the family of programs designed to deal with the
financial dangers of a changing world.'
137
Therefore, both post-crisis theoretical perspectives and the contemporary
practice of the law present a strong case for rebalancing personal insolvency
law towards its social insurance function, in expanding access to wide-
392
Figure 2. Bankruptcies by creditor/debtor petition, 2002±2015
Source: Insolvency Service
Figure 3. Debtor asset levels in bankruptcy cases, available data
Source: Insolvency Service.
137 Kilborn, op. cit., n. 1, p. 595.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
ranging debt relief. The next part of this article applies these broad ideas to
the particular context of the recent Court of Appeal case of Places for People
v. Sharples,
138
and the question it raised of personal insolvency law's
protection of debtor tenants from eviction. It shows how the ideas jostling for
primacy in the preceding pages reappear in the Sharples case, though
producing a contrasting conclusion.
FINDING A HOME FOR THE FRESH-START POLICY
In Places for People Homes Ltd. v. Sharples, the Court of Appeal heard
joined appeals in two cases where housing associations sought to evict
tenants who had fallen behind on rent and sought insolvency protection. The
Court answered negatively the central question raised of `whether a
bankruptcy order . . . and a DRO . . . preclude the making of an order for
possession of a dwelling let on an assured tenancy on the ground of rent
arrears.'
139
The question arose due to uncertainty regarding the scope of
insolvency's stay of any creditor's `remedy in respect of a debt',
140
and the
effect of a legislative amendment that had exempted the debtor's tenancy
from the bankruptcy estate.
141
One can in turn see this uncertainty as more
broadly caused by personal insolvency law's ambiguous aims. If the stay of
enforcement serves to facilitate the maximization of creditor recoveries by
preserving estate assets for the creditor body, the stay has no reason to
prevent an individual creditor from seizing an exempt asset such as a
tenancy. Alternatively, if the stay serves debt relief aims, it must offer
insurance against the debtor's eviction, since any meaningful fresh start
requires stable housing. The case thus required the court to make a stark
choice between competing conceptions of the law's aims.
1. Personal insolvency law in a housing crisis
In addition to what it says about personal insolvency law more broadly, the
case is important in its own right as it relates to the significant contemporary
housing problems that have developed during years of austerity, recession
and uneven recovery.
142
The case required personal insolvency law to
393
138 Places For People Homes Ltd. v. Sharples;A2 Dominion Homes Ltd. v. Godfrey
[2011] HLR 45. See, also, Harlow District Council v. Hall [2006] EWCA Civ. 156,
[2006] 1 WLR 211.
139 Sharples, id., para. 5.
140 See Insolvency Act 1986, ss. 285, 251G(2).
141 Insolvency Act 1986 (1986 c. 45), s. 283(3A), inserted by Housing Act 1988 (c. 50),
s. 117(1).
142 D. Dorling, All That Is Solid: The Great Housing Disaster (2014); J. Hohmann and
Just Fair, Protecting The Right To Housing In England: A Context Of Crisis (2015).
The decision's legal consequences extend to all main forms of tenancy, including
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
confront the question of its role in responding to this crisis. Rental
unaffordability and arrears have grown extraordinarily in recent years,
143
while tenant evictions by County Court bailiffs have increased by over 50
per cent in the years 2010±2015.
144
Counting formal court evictions,
however, is likely to `underestimate drastically the prevalence of involuntary
displacement among low-income renters'.
145
These problems are thus also
evident in informal home loss, such as the 2012±13 English Housing Survey
finding that the last tenancy of almost 18,000 households ended at the
request of a landlord, due to non-payment of rent.
146
Statutory homelessness
data provides an even starker picture of renters' financial difficulty. While
levels of homelessness attributed directly to rent arrears remain low,
147
homelessness arising from the termination of assured shorthold tenancies
rose fourfold between 2009±10 and 2014±15 (Figure 4).
148
Again, these
statistics understate the problem of homelessness, as current practices among
financially constrained local authorities encourage applicants to avail of
informal `housing options' over statutory homelessness applications.
149
Alongside housing costs outpacing income growth,
150
commentators look to
austerity policies and reduced public housing support as drivers of these
problems. Government has reduced housing allowance for private tenants,
`capped' overall levels of benefit payments per household, and placed limits
on eligible rents for social tenants under the policy colloquially known as the
394
the assured shorthold tenancy which is the standard in both social and private sector
tenancies: Insolvency Service, Insolvency Service Technical Manual, Part 4:
Tenanci es (2013) par a. 30.70, at ttps://www .insolven cydirect. bis.gov.uk /
technicalmanual/>. On the assimilation of housing association and private sector
tenancies, see D. Cowan et al., `Jurisdiction and Scale: Rent Arrears, Social
Housing, and Human Rights' (2012) 39 J. of Law and Society 269, at 283±8.
143 See, for example, StepChange Debt Charity, Stepchange Debt Charity Statistics
Yearbook Personal Debt 2014 (2015) 25; Money Advice Trust, op. cit., n. 4, pp. 4,
13±14.
144 Ministry of Justice (MoJ), Mortgage and Landlord Possession Statistics Quarterly,
England and Wales, October to December 2015 (2016), at
governmen t/uploads/s ystem/upload s/attachmen t_data/file /499083/mort gage-and-
landlord-possession-statistics-october-to-december-2015.pdf>.
145 M. Desmond and M. Bell, `Housing, Poverty, and the Law' (2015) 11 Annual Rev.
of Law and Social Science 15, at 24.
146 Department for Communities and Local Government (DCLG), English Housing
Survey 2012 To 2013: Household Report (2014) 85.
147 This is most likely due to procedural advantages for property owners of seeking
possession at the (usually short) tenancy's end: see s. 21, Housing Act 1988; Shelter,
Eviction Risk Monitor 2012 (2012) 8±9.
148 DCLG, `Statutory Homelessness in England: July to September 2015', at
www.g ov.uk/ govern ment/s tatist ics/st atutory -homel essnes s-in-e ngland -july- to-
september-2015>.
149 S. Fitzpatrick et al., The Homelessness Monitor: England 2015 (2015) vii, x±xi.
150 S. Clarke et al., The Housing Headwind: The Impact of Rising Housing Costs on UK
Living Standards (2016).
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
`bedroom tax'.
151
One charity concludes that the `weakening [of] the safety
net function of the social rented sector' has contributed to the serious rent
affordability problem.
152
The Sharples case raised questions as to how personal insolvency law and
policy should respond to the challenges of a shrinking social safety net and
395
Figure 4. Reasons for loss of home of households accepted by local
authorities as owed a main homelessness duty, England, 1998±2015
Source: Department for Communities and Local Government
151 id., pp. 21±38. For an official evaluation, see Department for Work and Pensions
(DWP), Evaluation of Removal of the Spare Room Subsidy (2015).
152 Fitzpatrick et al., op. cit., n. 149, p. viii.
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increased need for debtor protection from housing unaffordability and
eviction. Insolvency policy makers have paid surprisingly little attention to
this issue, in contrast to the frequent policy consideration of the treatment of
a property-owning debtor's home.
153
A 2008 Insolvency Service review
conceptualizes `the bankrupt's home' solely as a property owned by the
debtor and makes no mention of renters.
154
This is despite tenants' forming
the large majority of debtors entering the personal insolvency system. While
data are limited, only 8±14 per cent of bankruptcy debtors during the years
2003±2008 owned homes,
155
and in 2013±14, only 8 per cent of debtors held
assets worth more than £5,000.
156
Homeowners are ineligible for the `no
income, no asset' DRO procedure. Just as the over-indebted population
contains disproportionate numbers of renters,
157
personal insolvency very
much is a renter's law, though policy making does not reflect this.
158
396
Figure 5. Tenancy repossessions by County Court Bailiffs, England and
Wales, 2000±2015
Source: Ministry of Justice
153 Cork, op. cit., n. 19, paras. 1114±31; Insolvency Service, The Bankrupt's Home ±
Before and After the Enterprise Act 2002 (2008); Fletcher, op. cit., n. 1, paras. 8-022.
For similarities under Scottish law, see D. McKenzie-Skene, `Forgiving Our Debtors:
A Scottish Perspective on a Fresh Start for Debtors' (2005) 14 International
Insolvency Rev. 1, at 18±19. Much academic and policy discussion during the great
recession has also tended to focus on mortgage debt: see works cited at n. 15 above.
154 Insolvency Service, id.
155 Insolvency Service, Profiles of Bankrupts 2005/6±2007/8 (2009); Insolvency
Service, Profiles of Bankrupts 2003/4±2005/6 (2007).
156 Insolvency Service, op. cit., n. 48, p. 14.
157 European Commission et al., Over-Indebtedness: New Evidence from the EU-SILC
Special Module (2010) 38±40.
158 One exception was legislators' aforementioned intervention through s. 117(1) of the
Housing Act 1988 to exempt the debtor's tenancy from the bankruptcy estate, which
formed the subject of the Sharples case.
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2. Personal insolvency law and the social costs of eviction
While requiring novel application to the context of rental housing debt, the
above justifications for personal insolvency law's social insurance function
support a policy case for providing relief to tenants facing eviction. Eviction
generates not only considerable hardship for debtors, but also significant
social costs justifying public policy responses. Literature identifies links
between eviction and health problems,
159
and substantial emotional and
psychological costs may accompany eviction.
160
Where the debtor can avoid
the more drastic consequences of homelessness, she faces significant trans-
action costs of relocating to alternative accommodation.
161
These include
finding somewhere new to live,
162
transporting belongings, and abandoning
non-transportable items.
163
Upfront deposit payments and high costs of
temporary housing arrangements lead many renters to incur further debt,
often at high rates.
164
Investments in social networks may be lost,
165
and
eviction may force renters to move to areas of higher poverty and crime
rates.
166
An evicted debtor may encounter considerable difficulty in obtain-
ing a new tenancy due to the adverse impact of bankruptcy and an eviction
order on the debtor's credit history.
167
The recognition of these costs of
eviction `suggests that involuntary displacement is a cause, not simply a
condition, of poverty and social suffering'.
168
Eviction thus pushes debtors
further from the fresh start promised by personal insolvency law and pushes
housing market costs onto those least equipped to bear them. This should
lead to declining economic participation among affected populations, as just
one way in which eviction creates considerable negative externalities.
Further social costs include the risk of adverse consequences such as
detriment to education and development for children forced to undergo
relocation.
169
If multiple evictions strike in a particular area, this may
397
159 Desmond and Bell, op. cit., n. 145, p. 25.
160 M. Culhane, `No Forwarding Address' in Broke: How Debt Bankrupts the Middle
Class, ed. K. Porter (2012) 119, at 129±30.
161 O. Bar-Gill, `The Law, Economics and Psychology of Subprime Mortgage
Contracts' (2008) 94 Cornell Law Rev. 1073, at 1137.
162 J. Clifford et al., StepChange Debt Charity: Social Impact Evaluation of Certain
Projects Using Social Return on Investment (2014) 89.
163 Culhane, op. cit., n. 160, p. 129.
164 LSE Housing and Communities, op. cit., n. 12, p. ix.
165 Culhane, op. cit., n. 160, pp. 129±30.
166 Desmond and Bell, op. cit., n. 145, p. 25.
167 See, for example, Citizens Advice Bureau (CAB), Cutting Our Losses: The Need for
Good Debt Collection Practice for People with Debt Relief Orders (2015) 18;
Desmond and Bell, id.
168 Desmond and Bell, id., p. 26.
169 Culhane, op. cit., n. 160, pp. 130±2; Children's Society and StepChange Debt
Charity, The Debt Trap: Exposing the Impact of Problem Debt on Children (2014).
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increase stress and health problems among residents,
170
while unoccupied
premises also create distinct social costs.
171
Significantly, if the debtor is
unable to find alternative accommodation in the private market or social
rental sector, a duty may fall on the state under housing legislation to provide
accommodation,
172
with data above illustrating how this is an increasing
occurrence.
3. The decision in Sharples:`the provision of shelter and a ``fresh start'' to
overburdened debtors'?
173
The Sharples case therefore decided whether courts should interpret the
Housing Act 1988's exemption of a debtor's tenancy from the bankruptcy
estate as a policy intervention addressing these externalities and extending
personal insolvency's debt relief to protection from eviction. Initially this
appears to be the legislative intention behind the reform, as policy makers
originally justified it in terms emphasizing debtor rehabilitation:
. . . a bankrupt tenant whose tenancy has no financial value is put in an even
more unfortunate position if he should lose his tenancy too. If he loses his
home, he is not going to be in a position to sort out his affairs . . .
174
The Court of Appeal nonetheless rejected this perspective, holding that the
stay of creditor enforcement under the bankruptcy and DRO procedures did
not prohibit a court order evicting a debtor for non-payment of rent. Relying
on precedent predating the law reforms of the 1980s and 2000s described
above,
175
the court found that a possession order made on the ground of rent
arrears under an assured tenancy
176
is not a remedy in respect of the debt
constituted by the rent arrears. Rather, Etherton LJ stated that such an order
`is a remedy which restores to the landlord full proprietary rights, including
rights of occupation and letting, in respect of the property.'
177
The judge
rejected the debtors' arguments that the object of a claim for possession is to
secure payment of arrears. Instead, he held that such a claim relates to a
property right independent of a debt and aims `to restore to the landlord the
398
170 Dorling, op. cit., n. 142, pp. 252±3.
171 Bar-Gill, op. cit., n. 161, p. 1136.
172 DCLG, Homelessness Data: Notes and Definitions (2015); Clifford et al., op. cit., n.
162, pp. 89±90.
173 See n. 28 above.
174 Earl of Caithness, 500 H.L. Debs. col. 725 (11 October 1988).
175 Ezekiel v. Orakpo [1977] Q.B. 260.
176 The tenancies were `assured tenancies', in respect of which a court cannot make a
possession order except on specified grounds. Some grounds are mandatory, while
others are discretionary and allow courts to refrain from making an order where
unreasonable. The relevant grounds here were the discretionary ground of rent
arrears and the mandatory ground of eight weeks of unpaid rent. See Housing Act
1988 (1988 c. 50), s. 7 and Sch. 2.
177 Sharples, op. cit., n. 138, para. 63.
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right to full possession and enjoyment of the landlord's property.'
178
Thus,
under neither the bankruptcy nor DRO procedures do the moratoria on debt
remedies prevent an order for possession being made.
Alongside a literal interpretative approach, Etherton LJ also reached the
decision by considering the purpose of bankruptcy's stay of enforcement.
The judge saw this as the protection of the debtor's estate, to prevent one
creditor obtaining advantage over another, and so to maximize the asset pool
available for distribution to the body of creditors.
179
Etherton LJ held that
since an assured tenancy does not form part of the bankruptcy estate, this
purpose would not be frustrated by allowing a landlord to obtain a possession
order, as such order would not disadvantage other creditors.
180
Etherton LJ's
view was th at where indi vidual enfor cement only a ffects prope rty
unavailable to other creditors, there is no function for the stay to fulfil.
This clearly involves an understanding of the stay of enforcement as serving
the sole aim of maximizing the assets available for distribution to creditors.
Such logic would not seem to extend to Debt Relief Orders. The DRO is
open only to debtors lacking disposable income and assets and so involves
`no provision relating to the collection, realisation or distribution of the
debtor's estate.'
181
The judge nonetheless rejected the idea that this factor
necessitated a re-evaluation of the scope of the moratorium. While ack-
nowledging the `broad policy point that the object of a DRO is the relief
from debt of those with limited means and limited debts',
182
the judgment
abandoned a purposive approach in the DRO context. It instead reverted to a
literalist interpretation which would avoid giving `an artificial meaning' to
the wording of the relevant legislative provision.
183
The court thus was
comfortable adopting a purposive approach when the purpose in question
was one of debt collection, but inconsistently was unwilling to allow the debt
relief objective determine questions of legislative interpretation. The deci-
sion therefore evidences a clear prioritization of the law's debt collection
objective, to the point of marginalizing the debt relief aim. This logic
overlooks the merits of insolvency law's social insurance function and the
public policy case for the law providing a safety net against eviction. Instead,
it requires courts to decide the question of whether the law should protect
debtors from eviction solely by reference to the purpose of maximizing
creditor returns.
The second issue decided by the Court was that the status of rent arrears
as a bankruptcy debt means that the stays prevent courts from entering
judgment for the arrears, as the completion of the insolvency procedure
399
178 id., para. 65.
179 id., paras. 30, 70.
180 id., para. 70.
181 Howard, op. cit., n. 135, para. 61.
182 Sharples, op. cit., n. 138, para. 77.
183 Insolvency Act 1986, s. 251G.
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discharges these sums. Similarly, the stays prevent courts from making a
suspended possession order conditional on arrears repayment (as this would
qualify as a remedy in respect of a dischargeable debt). When deciding these
issues, Etherton LJ returned to purposive interpretation, noting that `the
DRO regime (and bankruptcy) is designed to restrict the recovery of debt
and, when the process is complete, to eliminate it.'
184
The judge then
concluded that permitting debt recovery through a conditional possession
order `would be contrary to that policy'. This reasoning on first reading
appears to interpret expansively the debt discharge under both procedures
and to recognize the law's debt relief aim. In effect, however, the judge's
prior holding regarding the stay of enforcement frustrates `that policy' and
illustrates the difficulty of attempts to balance the law's competing aims by
interpreting certain features by reference to one aim, and others by reference
to another. Since insolvency protection will not stop eviction, in practice
debtors will be denied this recognized statutory right to discharge, as to stave
off eviction debtors will need to repay legally dischargeable rent arrears. As
noted with regret by a judge following Sharples, even a debtor under DRO
protection who makes current rent payments may suffer eviction based on a
pre-existing conditionally suspended possession order.
185
Advice agencies
report that many property owners simply ignore a defaulting tenant's entry
into insolvency, or perversely take this event as cause to bring eviction
proceedings.
186
Consequently, the accepted practice among debt advisors
following Sharples is that a debtor must continue to repay rent arrears while
under such protection.
187
This practical reality renders ineffective Etherton
LJ's conceptual distinction between a remedy in respect of a debt and a
remedy to restore landlords' property rights,
188
a distinction that also ignores
empirical evidence that housing associations (and, one must equally assume,
private landlords) clearly see possession proceedings as a debt collection
method.
189
Thus, the Sharples decision has effectively created a divergence
between law and practice and undermined statutory provisions in obliging
debtors in practice to repay arrears where legislation provides for their
discharge from such debts. For those debtors lacking the means to pay,
personal insolvency law will provide no protection against eviction.
400
184 Sharples, op. cit., n. 138, para. 81.
185 Irwell Valley Housing Association Limited v. Docherty [2012] EWCA Civ 704,
para. 17.
186 CAB, op. cit., n. 167, p. 17.
187 See, for example, id., pp. 17±18; Howard, op. cit., n. 135, para. 9.
188 Sharples, op. cit., n. 138, para. 63.
189 Cowan et al., op. cit., n. 142, pp. 288, 293±4.
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4. Sharples and the social insurance function of personal insolvency law:
spreading the risks of a debt-based economy
Despite Etherton LJ's words regarding debt discharge, further comments of
the judge seem to acknowledge that the real point at issue was whether
insolvency's stay of enforcement prevents eviction. This is evident in
Etherton LJ's policy justifications for his decision, which centred on
concerns regarding the case's implications for housing providers and other
non-defaulting tenants. If insolvency indeed discharges rent arrears, then
property owners have already lost these sums and the law imposes no
additional costs on them by taking the further step of preventing eviction. In
fact, if eviction is avoided, property owners might benefit from the
rehabilitation of a financially troubled tenant into a debt-free occupant,
assumedly now better able to keep current on rents. This was far from the
view of Etherton LJ, who saw real costs for property owners if they are
unable to evict defaulting tenants, as well as for `non-defaulting tenants who
may have to pay higher rents to compensate for the landlord's lost
revenue.'
190
The judge cautioned that it:
could be financially catastrophic for [social] landlords to be unable to recover
possession from persistent non-payers and could threaten the availability of
social housing to meet the great demand from the large number of people who
are economically disadvantaged and seek suitable and affordable permanent
accommodation.
191
This reasoning calls into question the legitimacy of household debt relief
generally, in a manner epitomizing the aforementioned classical objections
to consumer and social protection measures.
As well as showing a lack of faith in the possibility of debtor rehabili-
tation, Etherton LJ's view of the debtor as a `persistent non-payer'
192
suggests an underlying assumption of debtor culpability that raises the
`spectre of moral hazard'.
193
Concerns of ex post moral hazard (that a debtor
may exaggerate her need for debt relief) arise in this context since protection
against eviction might potentially create incentives for debtors not to make
all reasonable efforts to pay rent, a possibility recognized by commentators
on the United States bankruptcy code.
194
Moral hazard reasoning does not,
however, call for a denial of insurance where it could create perverse
incentives but, rather, the structuring of insurance to address such incen-
401
190 Sharples, op. cit., n. 138, para. 5.
191 id., para. 71.
192 Here contrasted with the `economically disadvantaged', much like historical
distinctions between the `industrious poor' and the `undeserving poor': see D.
Graeber, Debt: The First 5,000 Years (2012) 388±9.
193 World Bank, op. cit., n. 66, para. 114.
194 Warren, op. cit., n. 28, pp. 502±3; A. Ahart, `The Inefficacy of the New Eviction
Exceptions to the Automatic Stay' (2006) 80 Am. Bankruptcy Law J. 125, at 126±7.
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tives.
195
Thus, eviction moratorium rules in insolvency could alleviate
concerns, for example, by permitting eviction in cases where a debtor is
current on all repayments other than rent (suggesting that the debtor was
deliberately withholding rent). The law could also permit eviction on
grounds other than non-payment of rent, and could learn from amendments
to the United States Bankruptcy Code that introduced exceptions to the stay
on eviction.
196
The law could also treat exceptionally cases in which the rent
would be unaffordable even after discharge. Ex ante moral hazard concerns
of irresponsible borrowing are less significant in the context of rented
properties than for other consumer borrowing, however. Housing is a
necessity, rather than a luxury purchase made by a `spendthrift' debtor.
197
Therefore, moral hazard concerns and the problem of potential `persistent
non-payment' do not appear to justify the outcome in Sharples.
In respect of Etherton LJ's second classic policy objection that protecting
insolvent tenants from eviction would increase costs for property owners and
subsequently for non-defaulting tenants, the social insurance function of
bankruptcy sees this as an outcome to be pursued rather than a `catastrophe'.
It seeks to spread the costs of a debt-based economy more widely in order to
address externalities and, in particular, debt overhang problems that result
from the market allocation of losses onto those least able to bear them.
Insurance theory would reallocate these losses onto housing associations and
holders of property portfolios, given they are better placed than debtors (and
third parties) both to bear these costs and to prevent them from arising.
198
Property owners, like all lenders, spread and hedge losses, and include
default losses in calculating rents charged across their range of tenants.
While this process is difficult for smaller owners, those engaging in the
commercial activity of renting property for profit must bear accompanying
risks and price them accordingly, as traders who do not understand their
businesses have no right to remain artificially in the market.
199
Landlords
may be less equipped than financial institutions to prevent default through
informed credit extension practices. They nonetheless benefit from access to
credit reference systems and remain much better placed than individual
renters to conduct complex risk assessments regarding tenants' future
likelihood of defaulting. Personal insolvency commentators suggest that
special considerations might apply to non-profit social landlords of the type
402
195 World Bank, op. cit., n. 66, para. 114.
196 11 U.S.C. ss. 362(b)(22), (23); Ahart, op. cit., n. 194. These exceptions permit
eviction where an eviction order predates the bankruptcy petition; where the
property is endangered; or where illegal use of controlled substances is taking place
therein.
197 L. LoPucki, `Common Sense Consumer Bankruptcy' (1997) 71 Am. Bankruptcy
Law J. 461, at 462±4.
198 See n. 121 above.
199 Howard, op. cit., n. 29, p. 1064. This is particularly so since `massive' government
subsidies support the private rental market: Dorling, op. cit., n. 142, p. 8.
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at interest in Sharples,
200
and indeed Etherton LJ's judgment emphasizes
how these property owners' tenancies serve not commercial objectives but a
`special social need'.
201
Nonetheless one must recognize that the shift of
social housing provision from local authorities to housing associations was
motivated by politicians' deliberate choice to instigate a `business ethos' in
this sector, and accordingly to treat housing associations similarly to private
landlords.
202
Housing associations practice such commercial risk manage-
ment techniques as conducting affordability assessments before letting.
203
This is particularly the case given the increasing consolidation of the sector
into a small number of very large providers, since `the bigger the organisa-
tion, the more it can insulate itself from external risks.'
204
Furthermore,
recent legislative changes have authorized social landlords to charge rents
closer to market rates, while some larger associations are `moving their focus
away from housing those in greatest need towards a more diversified tenant
base.'
205
As housing associations act more like commercial operators,
justifications grow for treating them as such in personal insolvency law.
Undoubtedly, particularly thorny policy issues arise at this `interface
between legislation governing the provision of . . . [social] accommodation
. . . and insolvency legislation.'
206
It is clear, nonetheless, that the social
insurance model of bankruptcy, and its strong argument in favour of eviction
protection, should feature in any policy assessment.
Regarding the passing of these property owner costs onto non-defaulting
tenants, again bankruptcy's social insurance function seeks precisely this
outcome. The payment of an increased premium (in higher rents) should
reduce externalities in producing a truer cost of credit/housing, while also
offering tenants insurance against the risk of over-indebtedness and eviction
that faces all renters in volatile economic conditions. Etherton LJ's words
hint that the law's provision of increased eviction protection would not only
raise rents, but also lead property owners to `ration' tenancies and refuse to
rent to certain groups perceived to be at high risk of future insolvency. One
must note, however, that landlords already carry out credit history checks to
screen prospective tenants, reducing access considerably.
207
Further, if this
warning rings true and markets can affordably provide only insecure housing
devoid of insurance against economically and socially harmful eviction, then
this suggests that law and policy should revisit openly the balance between
public and market provision. The current equilibrium, with public provision
403
200 D. Milman, `Debt R elief Orders : Mixed Messa ges from the Cou rts and
Policymakers' (2012) 25 Insolvency Intelligence 104, at 105±8.
201 Sharples, op. cit., n. 138, para. 71.
202 Cowan et al., op. cit., n. 142, pp. 282±6.
203 DWP, op. cit., n. 151, pp. 20, 67.
204 Cowan et al., op. cit., n. 142, p. 285.
205 Fitzpatrick et al., op. cit., n. 149, p. xv.
206 Sharples, op. cit., n. 138, para. 5.
207 See nn. 167 and 202 above.
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increasingly replaced by reliance on ensuring market access, has created a
necessary new social policy role for law and regulation in allowing citizens
to retain `basic . . . services even when they can no longer afford them
through the market.'
208
Policy makers have recognized this in their support
of defaulting mortgage debtors following the financial crisis,
209
but it is also
time for the law to consider in the rental context the appropriate balance
between ensuring freedom to access housing and freedom to maintain
housing.
210
CONCLUSION
The decision in Sharples exemplifies reasoning common in judicial
211
and
policy decision making in the field of personal insolvency, characterized by
an unwillingness to embrace wholly the fresh-start policy. Accordingly, the
law offers only `adulterated debt relief',
212
conditioned by the persistent
view that it should primarily serve the interests of creditors. A consequence
of the law choosing contract enforcement as the predominant regulatory
approach
213
is its inability to respond to contemporary challenges and to
fulfil its potential to produce positive policy outcomes. This article does not
argue that insolvency law is an ideal remedy for social problems better
addressed by the welfare system. The law, nonetheless, must recognize the
practical and policy context in which it operates, and its de facto role of last-
resort insurer against debt crises at both the micro and macro levels. In an
important article in the then-nascent consumer bankruptcy literature, Niemi
asked whether personal insolvency law should aim to cure a market failure or
a social problem.
214
In an increasingly financialized world, it appears ever
more difficult to draw such a boundary between the market and the social.
Private consumer credit and housing markets increasingly replace public
provision, but failures in these markets trigger significant social problems for
troubled households, while the resultant distribution of losses also generates
negative aggregate economic effects.
215
Contemporary scholarship advances
404
208 Haber, op. cit., n. 17, p. 807.
209 id., pp. 810±13; I. Ramsay, `Two Cheers for Europe: Austerity, Mortgage
Foreclosures and Personal Insolvency Policy in the EU' in Consumer Debt and
Social Exclusion, eds. H. Micklitz and I. Domurath (2015) 189, at 204±12.
210 M. Desmond et al., `Evicting Children' (2013) 92 Social Forces 303.
211 See, also, Regina (Balding) v. SS Work and Pensions [2007] EWCA Civ 1327,
[2008] 1 W.L.R. 564; Regina (Cooper and Payne) v. SS Work and Pensions [2011]
212 See n. 45 above.
213 I. Ramsay, `Consumer Credit Law, Distributive Justice and the Welfare State'
(1995) 15 Oxford J. of Legal Studies 177, at 197.
214 Niemi-Kiesilainen, op. cit., n. 1.
215 Mian and Sufi, op. cit., n. 8; Turner, op. cit., n. 7.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School
a strong policy case for understanding personal insolvency law as a form of
social insurance, a means of distributing more equitably and efficiently the
risks inherent in a debt-based economy. This calls for recognition of the
law's provision of wide-ranging debt relief as its primary objective, to be
emphasized over an alternative aim of attempting to produce maximum
returns to creditors from what is often a debtor's meagre income and assets.
Opposition to this approach is rooted in concerns of moral hazard and fears
of reducing credit supply, as evidenced in Etherton LJ's reasoning in
Sharples. Analysis of the global financial crisis and great recession,
however, illustrates the limited control individuals hold over the dynamics of
credit and demonstrates the great risks of excessive debt flows.
216
As
household debt creeps again towards pre-crisis levels,
217
and austerity
policies require citizens to turn ever more to markets for basic needs, it
seems an apt time to reimagine the role of personal insolvency law as an
insurer of last resort against the contemporary risks of our debt-burdened
society.
405
216 Turner, id.; R. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World
Economy (2011).
217 Office for Budget Responsibility, Economic and Fiscal Outlook (2016) 70.
ß2017 The Author. Journal of Law and Society ß2017 Cardiff University Law School

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