The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both?

American Bankruptcy Law Journal

Volumn 73, Issue 2, 1999, Pages 311-350

  Moss, David A ^a   Johnson, Gibbs A ^b  

^a HARVARD BUSINESS SCHOOL   (United States)

^b NONE

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EID: 0345881055     PISSN: 00279048     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (178)

1. Personal Bankruptcy Consumer Credit Crises: Hearings Before the Subcomm. on Admin. Oversight and the Courts of the Senate Comm. on the Judiciary, 105th Cong., 1st Sess. (April 11, 1997) (statement of Sen. Charles Grassley, Chairman), available in 1997 WL 182505 (F.D.C.H.) at 1.
2. Id.
3. Michelle Cottle, The Right to Default: When Did Bankruptcy Become an Accepted Fixture of Everyday Life?, WASH. MONTHLY, Mar. 1, 1997, at 14, 16.
4. Quoted in Julie Kosterlitz, Over the Edge, 29 NAT'L J. 870 , 871 (1997).
5. "Real consumer credit" is the amount of consumer credit outstanding at the end of a given year, adjusted for inflation according to the Consumer Price Index.
6. See Act of Apr. 4, 1800, ch. 19, 2 Stat. 19 (repealed 1803); Act of Aug. 19, 1841, ch. 9, 5 Stat. 440 (repealed 1843); Act of Mar. 2, 1867, ch. 176, 14 Stat. 517 (repealed 1878); Act of July 1, 1898, ch. 541, 30 Stat. 544 (repealed 1978).
7. Bankruptcy Act of 1800, ch. 19, § 1, 2 Stat. 19, 20. The word "traders" was defined to include "any merchant, or other person, residing within the United States, actually using the trade of merchandise, by buying and selling in gross, or by retail, or dealing in exchange, or as a banker, broker, factor, underwriter, or marine insurer . . . ."
8. See David A. Moss, Stop-Loss Capitalism: The Ex Ante and the Ex Post of Debtor Protection in America (Dec. 30, 1997) (unpublished manuscript, on file with the first author).
9. 31 CONG. REC. 1,852 (1898).
10. CONG. GLOBE, 27th Cong., 1st Sess., App. at 479 (1841).
11. Id.
12. Id.
13. See, e.g., PETER J. COLEMAN, DEBTORS AND CREDITORS IN AMERICA: INSOLVENCY, IMPRISONMENT FOR DEBT, AND BANKRUPTCY, 1607-1900 256-57 (1974); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 52 (1935). For a discussion of the abolishment of imprisonment for debt in particular states, see COLEMAN, supra, at 42-44 (Massachusetts) and 117-19 (New York).
14. See, e.g., PETER J. COLEMAN, DEBTORS AND CREDITORS IN AMERICA: INSOLVENCY, IMPRISONMENT FOR DEBT, AND BANKRUPTCY, 1607-1900 256-57 (1974); CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 52 (1935). For a discussion of the abolishment of imprisonment for debt in particular states, see COLEMAN, supra, at 42-44 (Massachusetts) and 117-19 (New York).
15. Letter from Daniel Webster to Louis Dwight (Apr. 19, 1830), in 2 THE PAPERS OF DANIEL WEBSTER 296-97 (Alfred S. Konefsjy & Andrew J. King eds.) (1983) (emphasis in the original).
16. Bankruptcy Act of 1898, ch. 541, § 4, 30 Stat. 544, 547.
17. 1899 ATTY. GEN. ANN. REP. 384-85, 388-89.
18. Id.
19. 1901 ATTY. GEN. ANN. REP. 396-97, 400-01.
20. 1909 ATTY. GEN. ANN. REP. 146.
21. See, e.g., MESSAGE FROM THE PRESIDENT OF THE UNITED STATES RECOMMENDING THE STRENGTHENING OF PROCEDURE IN THE JUDICIAL SYSTEM TOGETHER WITH THE REPORT OF THE ATTORNEY GENERAL ON BANKRUPTCY LAW AND PRACTICE , S. DOC. NO. 65, 72d Cong., 1st Sess. 197-98 (1932) [hereinafter STRENGTHENING OF PROCEDURE]; Rolf Nugent, Why Wage Earners Go Bankrupt, AM. BANKERS ASS'N J., July, 1931, at 9, 9 (1931) ("The bankrupt may earn his living as a wage-earner but his failure may have been the result of a business enterprise with which he had become associated as a secondary occupation. The Department of Justice reports classify a great many bankrupts as wage-earners who have failed in business but at the time of filing petitions in bankruptcy had become employees").
22. See, e.g., MESSAGE FROM THE PRESIDENT OF THE UNITED STATES RECOMMENDING THE STRENGTHENING OF PROCEDURE IN THE JUDICIAL SYSTEM TOGETHER WITH THE REPORT OF THE ATTORNEY GENERAL ON BANKRUPTCY LAW AND PRACTICE , S. DOC. NO. 65, 72d Cong., 1st Sess. 197-98 (1932) [hereinafter STRENGTHENING OF PROCEDURE]; Rolf Nugent, Why Wage Earners Go Bankrupt, AM. BANKERS ASS'N J., July, 1931, at 9, 9 (1931) ("The bankrupt may earn his living as a wage-earner but his failure may have been the result of a business enterprise with which he had become associated as a secondary occupation. The Department of Justice reports classify a great many bankrupts as wage-earners who have failed in business but at the time of filing petitions in bankruptcy had become employees").
23. 45 CONG. REC. 2,272 (1910). Two years earlier, the official publication of the National Association of Credit Men proposed amending the federal bankruptcy law to exclude persons with debts of under $300 from voluntary filings. This amendment was justified on the grounds that "in certain parts of the country, debtors owing but small sums, and these largely for the necessaries of life, have often applied for bankruptcy to escape such debts." Proposed Amendments to the National Bankruptcy Act, 5 L. & COM. 525, 526 (1908).
24. 45 CONG. REC. 2,272 (1910). Two years earlier, the official publication of the National Association of Credit Men proposed amending the federal bankruptcy law to exclude persons with debts of under $300 from voluntary filings. This amendment was justified on the grounds that "in certain parts of the country, debtors owing but small sums, and these largely for the necessaries of life, have often applied for bankruptcy to escape such debts." Proposed Amendments to the National Bankruptcy Act, 5 L. & COM. 525, 526 (1908).
25. ROLF NUGENT, CONSUMER CREDIT AND ECONOMIC STABILITY 97-98 (1939).
26. Charles E. Persons, Credit Expansion, 1920 to 1929, and its Lessons, 45 Q.J. ECON. 94, 109 (1930).
27. DUNCAN MCC. HOLTHAUSEN ET AL., THE VOLUME OF CONSUMER INSTALMENT CREDIT, 1929-38 17 (1940).
28. U.S. DEP'T OF COMMERCE, DOMESTIC COMMERCE SERIES NO. 72, RETAIL CREDIT SURVEY: JANUARY - JUNE 1932 2 (1932).
29. U.S. DEP'T. OF COMMERCE, BUREAU OF THE CENSUS, HISTORICAL STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970 at 989 (Series X-409) and 211 (Series E-135) (1975).
30. Until 1933, the data collected by the Attorney General's Office included a "wage-earner" category, which we equated with nonbusiness bankruptcies. For the years 1934 to 1939, we identified the categories "Employees, professional men" and "Others not in business" as representing nonbusiness bankruptcies. All data after 1939 were reported by the Administrative Office of the United States Courts rather than the Attorney General's office. For the years 1940 to 1979, we equated nonbusiness bankruptcies with the categories "Employee" and "Others not in business." From 1980 on, the Administrative Office of the United States Courts explicitly included the category "Nonbusiness bankruptcies."
31. 1929 ATTY. GEN. ANN. REP. 189.
32. Nugent, supra note 20, at 10.
33. Id. at 9.
34. Id.
35. Id. at 11.
36. Thomas D. Thacher, Administration of the Bankruptcy Act, REPORT OF THE FIFTY-THIRD ANNUAL MEETING OF AMERICAN BAR ASSOCIATION HELD AT CHICAGO, ILLINOIS, AUGUST 20, 21 and 22, 1930, at 251, 255 (1930).
37. Id. at 253.
38. VICTOR SADD & ROBERT T. WILLIAMS, U.S. DEP'T OF COMMERCE, CAUSES OF BANKRUPTCIES AMONG CONSUMERS 8 (1933).
39. Id. at 11.
40. Id. at 5.
41. Walter D. Coles, The Bankruptcy Law and Its Amendment, 36 COM. L.J. 317, 321 (1931).
42. These investigations also suggested that many distressed debtors felt compelled to pursue discharges under federal bankruptcy law as a result of stringent state wage-garnishment and wage-assignment laws. Attachment of wages was extremely threatening to workers not only because it could deprive them of their only source of income but also because it was common for employers to fire workers whose wages had been attached. See, e.g., STRENGTHENING OF PROCEDURE, supra note 20, at 80-82; A. Fortas, Wage Assignments in Chicago - State Street Furniture Co. v. Armour & Co.., 42 YALE L.J. 526, 526-60 (1933); Nugent, supra note 20, at 11; Wesley A. Sturges & Don E. Cooper, Credit Administration and Wage Earner Bankruptcies, 42 YALE L.J. 487, 487-525 (1933). Interestingly, the same dynamic may still hold true today. In her study of sixteen high and low bankruptcy states, Diane Ellis found "a good fit between state garnishment laws and the incidence of personal bankruptcy." See Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5. In other words, states with tough (creditor-friendly) garnishment laws also happen to have high bankruptcy rates relative to the national average. Although Mark Zandi reports a similar result, Alden Shiers and Daniel Williamson (in a study covering all 50 states and the District of Columbia) do not find a significant correlation between wage garnishment levels and bankruptcy rates within the various states. See Alden F. Shiers & Daniel P. Williamson, Nonbusiness Bankruptcies and the Law: Some Empirical Results, 21 J. CONSUMER AFF. 277, 289 (1987); Mark M. Zandi, Easy Credit, Profligate Borrowing, Tough Lessons, REGIONAL FIN. REV., Jan. 1997, at 16, 19.
43. These investigations also suggested that many distressed debtors felt compelled to pursue discharges under federal bankruptcy law as a result of stringent state wage-garnishment and wage-assignment laws. Attachment of wages was extremely threatening to workers not only because it could deprive them of their only source of income but also because it was common for employers to fire workers whose wages had been attached. See, e.g., STRENGTHENING OF PROCEDURE, supra note 20, at 80-82; A. Fortas, Wage Assignments in Chicago - State Street Furniture Co. v. Armour & Co.., 42 YALE L.J. 526, 526-60 (1933); Nugent, supra note 20, at 11; Wesley A. Sturges & Don E. Cooper, Credit Administration and Wage Earner Bankruptcies, 42 YALE L.J. 487, 487-525 (1933). Interestingly, the same dynamic may still hold true today. In her study of sixteen high and low bankruptcy states, Diane Ellis found "a good fit between state garnishment laws and the incidence of personal bankruptcy." See Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5. In other words, states with tough (creditor-friendly) garnishment laws also happen to have high bankruptcy rates relative to the national average. Although Mark Zandi reports a similar result, Alden Shiers and Daniel Williamson (in a study covering all 50 states and the District of Columbia) do not find a significant correlation between wage garnishment levels and bankruptcy rates within the various states. See Alden F. Shiers & Daniel P. Williamson, Nonbusiness Bankruptcies and the Law: Some Empirical Results, 21 J. CONSUMER AFF. 277, 289 (1987); Mark M. Zandi, Easy Credit, Profligate Borrowing, Tough Lessons, REGIONAL FIN. REV., Jan. 1997, at 16, 19.
44. These investigations also suggested that many distressed debtors felt compelled to pursue discharges under federal bankruptcy law as a result of stringent state wage-garnishment and wage-assignment laws. Attachment of wages was extremely threatening to workers not only because it could deprive them of their only source of income but also because it was common for employers to fire workers whose wages had been attached. See, e.g., STRENGTHENING OF PROCEDURE, supra note 20, at 80-82; A. Fortas, Wage Assignments in Chicago - State Street Furniture Co. v. Armour & Co.., 42 YALE L.J. 526, 526-60 (1933); Nugent, supra note 20, at 11; Wesley A. Sturges & Don E. Cooper, Credit Administration and Wage Earner Bankruptcies, 42 YALE L.J. 487, 487-525 (1933). Interestingly, the same dynamic may still hold true today. In her study of sixteen high and low bankruptcy states, Diane Ellis found "a good fit between state garnishment laws and the incidence of personal bankruptcy." See Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5. In other words, states with tough (creditor-friendly) garnishment laws also happen to have high bankruptcy rates relative to the national average. Although Mark Zandi reports a similar result, Alden Shiers and Daniel Williamson (in a study covering all 50 states and the District of Columbia) do not find a significant correlation between wage garnishment levels and bankruptcy rates within the various states. See Alden F. Shiers & Daniel P. Williamson, Nonbusiness Bankruptcies and the Law: Some Empirical Results, 21 J. CONSUMER AFF. 277, 289 (1987); Mark M. Zandi, Easy Credit, Profligate Borrowing, Tough Lessons, REGIONAL FIN. REV., Jan. 1997, at 16, 19.
45. These investigations also suggested that many distressed debtors felt compelled to pursue discharges under federal bankruptcy law as a result of stringent state wage-garnishment and wage-assignment laws. Attachment of wages was extremely threatening to workers not only because it could deprive them of their only source of income but also because it was common for employers to fire workers whose wages had been attached. See, e.g., STRENGTHENING OF PROCEDURE, supra note 20, at 80-82; A. Fortas, Wage Assignments in Chicago - State Street Furniture Co. v. Armour & Co.., 42 YALE L.J. 526, 526-60 (1933); Nugent, supra note 20, at 11; Wesley A. Sturges & Don E. Cooper, Credit Administration and Wage Earner Bankruptcies, 42 YALE L.J. 487, 487-525 (1933). Interestingly, the same dynamic may still hold true today. In her study of sixteen high and low bankruptcy states, Diane Ellis found "a good fit between state garnishment laws and the incidence of personal bankruptcy." See Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5. In other words, states with tough (creditor-friendly) garnishment laws also happen to have high bankruptcy rates relative to the national average. Although Mark Zandi reports a similar result, Alden Shiers and Daniel Williamson (in a study covering all 50 states and the District of Columbia) do not find a significant correlation between wage garnishment levels and bankruptcy rates within the various states. See Alden F. Shiers & Daniel P. Williamson, Nonbusiness Bankruptcies and the Law: Some Empirical Results, 21 J. CONSUMER AFF. 277, 289 (1987); Mark M. Zandi, Easy Credit, Profligate Borrowing, Tough Lessons, REGIONAL FIN. REV., Jan. 1997, at 16, 19.
46. These investigations also suggested that many distressed debtors felt compelled to pursue discharges under federal bankruptcy law as a result of stringent state wage-garnishment and wage-assignment laws. Attachment of wages was extremely threatening to workers not only because it could deprive them of their only source of income but also because it was common for employers to fire workers whose wages had been attached. See, e.g., STRENGTHENING OF PROCEDURE, supra note 20, at 80-82; A. Fortas, Wage Assignments in Chicago - State Street Furniture Co. v. Armour & Co.., 42 YALE L.J. 526, 526-60 (1933); Nugent, supra note 20, at 11; Wesley A. Sturges & Don E. Cooper, Credit Administration and Wage Earner Bankruptcies, 42 YALE L.J. 487, 487-525 (1933). Interestingly, the same dynamic may still hold true today. In her study of sixteen high and low bankruptcy states, Diane Ellis found "a good fit between state garnishment laws and the incidence of personal bankruptcy." See Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5. In other words, states with tough (creditor-friendly) garnishment laws also happen to have high bankruptcy rates relative to the national average. Although Mark Zandi reports a similar result, Alden Shiers and Daniel Williamson (in a study covering all 50 states and the District of Columbia) do not find a significant correlation between wage garnishment levels and bankruptcy rates within the various states. See Alden F. Shiers & Daniel P. Williamson, Nonbusiness Bankruptcies and the Law: Some Empirical Results, 21 J. CONSUMER AFF. 277, 289 (1987); Mark M. Zandi, Easy Credit, Profligate Borrowing, Tough Lessons, REGIONAL FIN. REV., Jan. 1997, at 16, 19.
47. See In re Perry, 272 F. Supp. 73, 79-80 (D. Me. 1967).
48. Id. at 80.
49. STRENGTHENING OF PROCEDURE, supra note 20, at 85.
50. Id. at 84.
51. Although Thacher's interest in wage earner amortization plans and the subsequent enactment of Chapter 13 represented pivotal developments in the history of consumer bankruptcy law, consumer bankruptcy was generally viewed as a side issue when major bankruptcy reforms (and particularly the Chandler Act) were being contemplated during the 1930s. Commenting on an early version of the Chandler Act, James Angell MacLachlan recalled some thirty years later that "the 'Act was drawn up to meet the needs of ailing businessmen; the relief for consumers or wage owners [sic] was mostly incidental.'" In re Perry, supra, note 40, at 86 n.37 (quoting MacLachlan in THE WRIT, Sept., 1966 (Washington Univ. School of Law)).
52. One bankruptcy referee from Alabama charged that so far as the wage earner is concerned, Thacher's proposed legislation, is nothing more or less than this, in effect: a wage earner can not get his discharge. I do not care what your provisions and exceptions are, the main purpose of that bill is not to let a wage earner get his discharge if within two years he can pay his bills out of his future earnings. That is not entirely involuntary, because he need not come in, but it is saying, if you come in you are going into slavery; either go into servitude, or stay out of the bankruptcy court. Enactment of this part of the bill will delight the loan-shark, the cheap-clothes dealer and the high-powered installment payment plan houses. We know they can not pay such creditors - we people who have lived with these laborers. In re Perry, supra note 40, at 82 (quoting testimony by Referee Dryer of Alabama before the Senate Comm. on Jud., 72d Cong., 1st Sess. (1933)).
53. James Angell MacLachlan, Puritanical Therapy for Wage Earners, 68 COM. L.J. 87, 90 (1963).
54. Id.
55. Fred C. Fields, Needed Changes in Individual Bankruptcy, PROCEEDINGS OF OKLAHOMA INSTITUTE OF CONSUMER CREDIT MANAGEMENT FOR 1959 7 (1959), in GEORGE ALLEN BRUNNER, PERSONAL BANKRUPTCIES: TRENDS AND CHARACTERISTICS 4 (1965).
56. Fred C. Fields, Needed Changes in Individual Bankruptcy, PROCEEDINGS OF OKLAHOMA INSTITUTE OF CONSUMER CREDIT MANAGEMENT FOR 1959 7 (1959), in GEORGE ALLEN BRUNNER, PERSONAL BANKRUPTCIES: TRENDS AND CHARACTERISTICS 4 (1965).
57. Making Bankruptcy Pay, TIME, Feb. 22, 1963, at 44.
58. H.J. Maidenberg, Personal Finance: Bankruptcies, N.Y. TIMES, June 19, 1967, at 52.
59. Bankruptcy - No Longer a Dirty Word, U.S. NEWS & WORLD REPORT, Apr. 7, 1975, at 52-53. "The stigma once attached to taking a financial bath no longer seems to be an important consideration for many modern-day debtors, according to judges in bankruptcy courts across the country." Id. at 52.
60. Writing in 1931, Rolf Nugent purported to quote an anonymous banker as being unfamiliar with the phenomenon of wage-earner bankruptcy: "Do wage-earners actually go bankrupt? I am, of course, familiar . . . with bankruptcy among business men. . . . But wage-earners! I never heard of a wage-earner going bankrupt." This was the comment of a well-informed banker when the increasing number of wage-earner bankruptcies was mentioned. It represents, I believe, the idea which most of us have about bankruptcy. Nevertheless, from July 1, 1929, to June 30, 1930 . . . the number of wage-earners discharged in bankruptcy almost equalled the number of discharged debtors of all other occupations put together. Nugent, supra note 20, at 9.
61. 1921 ATTY. GEN. ANN. REP. 326.
62. 1929 ATTY. GEN. ANN. REP. 189.
63. 1960 ADMIN. OFFICE OF U.S. CTS. ANN. REP. 163.
64. 1997 U.S. CTS. ADMIN. OFFICE FED. JUD. CASELOAD STAT. 13.
65. Figures 1 and 2 reflect data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 211, 989 (1975).
66. Figures 1 and 2 reflect data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 211, 989 (1975).
67. Figures 1 and 2 reflect data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 211, 989 (1975).
68. Figures 1 and 2 reflect data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 211, 989 (1975).
69. 1998 PRESIDENT ECON. REP. 317; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 210-11, 224 (1975).
70. 1998 PRESIDENT ECON. REP. 317; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 210-11, 224 (1975).
71. 59 STRENGTHENING OF PROCEDURE, supra note 20, at 83; Nugent, supra note 22, at 50.
72. William O. Douglas, Wage Earner Bankruptcies - State vs. Federal Control, 42 YALE L.J. 591, 632-33 (1933).
73. U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970, at 225 (1975).
74. TERESA A. SULLIVAN ET AL., AS WE FORGIVE OUR DEBTORS: BANKRUPTCY AND CONSUMER CREDIT IN AMERICA 64 tbl.4.1 (1989).
75. 1998 PRESIDENT ECON. REP. 317.
76. After correcting for inflation, an annual income of $1,750 in 1930 would be equivalent to $9,538 in 1981. In real (inflation-corrected) terms, therefore, the median bankrupt of 1981 (who earned just under $15,000) was richer than the median bankrupt of 1930. Over this same period, however, real per capita GNP grew so dramatically in the United States that someone who earned almost $15,000 in 1981 occupied a much lower position in the overall income distribution than someone with an income of $1,750 in 1930.
77. Stephanie Shipp & Eva Jacobs, How Family Spending Has Changed in the U.S., 113 MONTHLY LAB. REV., Mar. 1990, at 20, 25.
78. Sturges & Cooper, supra note 39, at 515 n.116.
79. Id.
80. Glenn B. Canner et al., Household Sector Borrowing and the Burden of Debt, 81 FED. RESERVE BULL. 323, 330 (1995).
81. STRENGTHENING OF PROCEDURE, supra note 20, at 9.
82. See supra Figure 2.
83. For an overview of the changes introduced in 1978, see, e.g., Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 34-37 (1995). Although the 1978 law established a minimum federal exemption that was more generous than many state exemptions, it also permitted states to prohibit their residents from using the federal exemption. About three-quarters of the states have since opted out of the federal exemption. Id. at 36-37. See also Kenneth N. Klee, Legislative History of the New Bankruptcy Code, 54 AM. BANKR. L.J. 275, 275-97 (1980).
84. For an overview of the changes introduced in 1978, see, e.g., Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 34-37 (1995). Although the 1978 law established a minimum federal exemption that was more generous than many state exemptions, it also permitted states to prohibit their residents from using the federal exemption. About three-quarters of the states have since opted out of the federal exemption. Id. at 36-37. See also Kenneth N. Klee, Legislative History of the New Bankruptcy Code, 54 AM. BANKR. L.J. 275, 275-97 (1980).
85. Vern McKinley, Ballooning Bankruptcies: Issuing Blame for the Explosive Growth, 20 REGULATION 33, 38 (1997).
86. 1997 PRESIDENT ECON. REP. 59. The Economic Report of the President for 1998 offered a more balanced perspective: Some have argued that this uptrend [in bankruptcies] resulted from passage of the Bankruptcy Act of 1978. . . . Other analysts argue that the approximate correspondence between passage of that act and the beginning of the uptrend in bankruptcies is just a coincidence, and that rising bankruptcy rates reflect other social and economic developments that would have led to a rising bankruptcy rate even if the law had remained unchanged. 1998 PRESIDENT ECON. REP. 74.
87. 1997 PRESIDENT ECON. REP. 59. The Economic Report of the President for 1998 offered a more balanced perspective: Some have argued that this uptrend [in bankruptcies] resulted from passage of the Bankruptcy Act of 1978. . . . Other analysts argue that the approximate correspondence between passage of that act and the beginning of the uptrend in bankruptcies is just a coincidence, and that rising bankruptcy rates reflect other social and economic developments that would have led to a rising bankruptcy rate even if the law had remained unchanged. 1998 PRESIDENT ECON. REP. 74.
88. Personal Bankruptcy Consumer Credit Crises: Hearings Before the Subcomm. on Admin. Oversight and the Courts of the Comm. on the Judiciary, 105th Cong. 1st Sess. (April 11, 1997) (Statement of the American Bankruptcy Institute), available in 1997 WL 176645 (F.D.C.H.) at 7.
89. H.R. REP. NO. 95-595, at 118 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6078-79. The House Report also explained the purposes of the proposed legislation in greater depth: First, the bill simplifies, expands, and makes more flexible wage earner plans . . . . Second, many of the provisions in the current bankruptcy law that enable private action to undo the beneficial effects of bankruptcy are changed. Third, the debtor is given adequate exemptions and other protections to ensure that bankruptcy will provide a fresh start. Fourth, the bankruptcy system is modified to eliminate the close relationship between a bankruptcy judge and a trustee that often works to the consumer debtor's detriment. Id. at 117-18, reprinted in 1978 U.S.C.C.A.N. 5963, 6078. With regard to modifications of Chapter 13, the Senate Report stated, "The new chapter 13 will permit almost any individual with regular income to propose and have approved a reasonable plan for debt repayment based on that individual's exact circumstances. . . . This kind of plan has provided great self-satisfaction and pride to those debtors who complete them and at the same time effect a maximum return to creditors" S. REP. NO. 95-989, at 13 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5799.
90. H.R. REP. NO. 95-595, at 118 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6078-79. The House Report also explained the purposes of the proposed legislation in greater depth: First, the bill simplifies, expands, and makes more flexible wage earner plans . . . . Second, many of the provisions in the current bankruptcy law that enable private action to undo the beneficial effects of bankruptcy are changed. Third, the debtor is given adequate exemptions and other protections to ensure that bankruptcy will provide a fresh start. Fourth, the bankruptcy system is modified to eliminate the close relationship between a bankruptcy judge and a trustee that often works to the consumer debtor's detriment. Id. at 117-18, reprinted in 1978 U.S.C.C.A.N. 5963, 6078. With regard to modifications of Chapter 13, the Senate Report stated, "The new chapter 13 will permit almost any individual with regular income to propose and have approved a reasonable plan for debt repayment based on that individual's exact circumstances. . . . This kind of plan has provided great self-satisfaction and pride to those debtors who complete them and at the same time effect a maximum return to creditors" S. REP. NO. 95-989, at 13 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5799.
91. See, e.g., William T. Vukowich, Reforming the Bankruptcy Reform Act of 1978: An Alternative Approach, 71 GEO L.J. 1129, 1132, 1135-36 (1983).
92. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
93. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
94. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
95. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
96. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
97. On the debate over whether the 1978 law marked a turning point in bankruptcy filings, see also Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate: An Historical Analysis, 67 AM. BANKR. L.J. 1, 1-15 (1993); William J. Boyes & Roger L. Faith, Some Effects of the Bankruptcy Reform Act of 1978, 29 J.L. & ECON. 139, 139-49 (1986); Richard L. Peterson & Kiyomi Aoki, Bankruptcy Filings Before and After Implementation of the Bankruptcy Reform Law, 36 J. ECON. & BUS. 95, 95-105 (1984); Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 419-37 (1984); Michelle J. White, Personal Bankruptcy Under the 1978 Bankruptcy Code: An Economic Analysis, 63 IND. L.J. 1, 29 (1987); Fred R. Bleakley, Personal-Bankruptcy Filings are Soaring, WALL ST. J., May 8, 1996, at A2.
98. See supra Figure 2.
99. Id.
100. McKinley, supra note 72 at 38-39.
101. Vukowich, supra note 76, at 1131.
102. See Bates v. State Bar of Arizona, 433 U.S. 350, 384 (1977): The constitutional issue in this case is only whether the State may prevent the publication in a newspaper of appellants' truthful advertisement concerning the availability and terms of routine legal services. We rule simply that the flow of such information may not be restrained, and we therefore hold the present application of the disciplinary rule against appellants to be violative of the First Amendment. On the possible relationship between lawyer advertising and increasing filing rates, see, e.g., ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE LAW OF DEBTORS AND CREDITORS: TEXT, CASES, AND PROBLEMS 433-36 (3d ed. 1996); Ellis, supra note 39, at 2; Vukowich, supra note 76, at 1131.
103. 1998 PRESIDENT ECON. REP. 330.
104. On the 1984 Amendments, see Karen Gross, Preserving a Fresh Start for the Individual Debtor: The Case for Narrow Construction of the Consumer Credit Amendments, 135 U. PA. L. REV. 59, 59-152 (1986); Charles A. Luckett, Personal Bankruptcies, 74 FED. RESERVE BULL. 591, 593 (1988); Jeffrey W. Morris, Substantive Consumer Bankruptcy Reform in the Bankruptcy Amendments Act of 1984, 27 WM. & MARY L. REV. 91, 91-164 (1985); Roy Ann Russ, Recent Developments in Bankruptcy Law: Chapter 13, 2 BANKR. DEV. J. 147, 147-69 (1985).
105. On the 1984 Amendments, see Karen Gross, Preserving a Fresh Start for the Individual Debtor: The Case for Narrow Construction of the Consumer Credit Amendments, 135 U. PA. L. REV. 59, 59-152 (1986); Charles A. Luckett, Personal Bankruptcies, 74 FED. RESERVE BULL. 591, 593 (1988); Jeffrey W. Morris, Substantive Consumer Bankruptcy Reform in the Bankruptcy Amendments Act of 1984, 27 WM. & MARY L. REV. 91, 91-164 (1985); Roy Ann Russ, Recent Developments in Bankruptcy Law: Chapter 13, 2 BANKR. DEV. J. 147, 147-69 (1985).
106. On the 1984 Amendments, see Karen Gross, Preserving a Fresh Start for the Individual Debtor: The Case for Narrow Construction of the Consumer Credit Amendments, 135 U. PA. L. REV. 59, 59-152 (1986); Charles A. Luckett, Personal Bankruptcies, 74 FED. RESERVE BULL. 591, 593 (1988); Jeffrey W. Morris, Substantive Consumer Bankruptcy Reform in the Bankruptcy Amendments Act of 1984, 27 WM. & MARY L. REV. 91, 91-164 (1985); Roy Ann Russ, Recent Developments in Bankruptcy Law: Chapter 13, 2 BANKR. DEV. J. 147, 147-69 (1985).
107. On the 1984 Amendments, see Karen Gross, Preserving a Fresh Start for the Individual Debtor: The Case for Narrow Construction of the Consumer Credit Amendments, 135 U. PA. L. REV. 59, 59-152 (1986); Charles A. Luckett, Personal Bankruptcies, 74 FED. RESERVE BULL. 591, 593 (1988); Jeffrey W. Morris, Substantive Consumer Bankruptcy Reform in the Bankruptcy Amendments Act of 1984, 27 WM. & MARY L. REV. 91, 91-164 (1985); Roy Ann Russ, Recent Developments in Bankruptcy Law: Chapter 13, 2 BANKR. DEV. J. 147, 147-69 (1985).
108. Although there is not a great deal of evidence to confirm or reject this hypothesis, what data is available appears to be consistent with the notion that individual debtors are not hypersensitive to the legal environment in deciding whether to enter bankruptcy. In their seminal 1989 book on consumer bankruptcy filers, for example, Teresa Sullivan, Elizabeth Warren, and Jay Westbrook report no correlation between state exemption levels and the debt-income ratios of individuals who filed for bankruptcy in a variety of states. They contend that this is a striking result because economic theory would have predicted that individuals in states with high exemption levels should be quicker to file and thus should enter bankruptcy with lower debt-income ratios. SULLIVAN ET AL., supra note 62, at 240-42. According to the authors, "These data dispute the central premise that debtors will respond to economic incentives according to a simple economic model." Id. at 242. Ellis has reported, moreover, that her study of sixteen high and low bankruptcy states "does not show any systematic pattern that would indicate a close relationship between homestead exemption levels and the incidence of personal bankruptcy." Ellis, supra note 39, at 7. In a study covering all 50 states and the District of Columbia, Shiers and Williamson actually found that low exemption states tended to have higher bankruptcy rates than high exemption states. They conclude that the cause must be more lenient lending in low-exemption states. Shiers & Williamson, supra note 39, at 277-92.
109. See supra note 4, at 871.
110. See, e.g., Scott Fay et al., The Bankruptcy Decision: Does Stigma Matter (Jan. 1998) (unpublished manuscript, on file with the first author).
111. Of course, it is possible that the takeoff in filings occurred when stigma, which had been declining gradually over time, eventually reached some critically low level. Although this sort of "critical mass" argument is interesting, it has yet to be made persuasively in the literature. Nor is it entirely clear what sort of data could be employed either to confirm or reject such an hypothesis.
112. See supra notes 60-68 and accompanying text.
113. In fact, it appears that consumer debt may also have been moving rapidly down the income distribution the last time the consumer bankruptcy multiplier surged in the mid 1930s. In a study of consumer debt for the years 1935-36, Blanche Bernstein observed: It is especially noteworthy that although families in all income levels increased consumer debt to a greater extent than they decreased it, lower-income families exhibited the strongest tendency in this direction during a period of economic expansion. Since lower-income families went deeper into debt for each type of credit as well as for all types combined, it would appear that consumer credit in the year 1935-36 was applied primarily to the raising of a standard of living in anticipation of increasing income, and with particular intensity by families whose need was greatest. . . . [T]he estimates indicate that at least for every income group above the $1250 level the net increase in consumer debt was more than offset by savings, and that the total new savings effected in these income levels exceeded $6,200,000,000. Families in the income levels below $1250, on the other hand, had net dissavings amounting to almost $1,400,000,000. BLANCHE BERNSTEIN, THE PATTERN OF CONSUMER DEBT, 1935-36: A STATISTICAL ANALYSIS, 108-10 (1940).
114. Table 1 reflects data drawn from 1998 PRESIDENT ECON. REP. 317, 352, 372 and Glenn B. Canner, et al., Household Sector Borrowing and the Burden of Debt, 81 FED. RESERVE BULL. 323, 330, 332 (1985).
115. Table 1 reflects data drawn from 1998 PRESIDENT ECON. REP. 317, 352, 372 and Glenn B. Canner, et al., Household Sector Borrowing and the Burden of Debt, 81 FED. RESERVE BULL. 323, 330, 332 (1985).
116. Canner et al., supra note 68, at 326, 330, 332.
117. Recent analyses of the Federal Reserve's 1995 Survey of Consumer Finances, moreover, confirm that these trends did not end in 1992. Over at least the next few years, lower-income households continued to take on consumer debt at a faster pace than upper-income households. See Arthur B. Kennickell, et al., Family Finances in the U.S.: Recent Evidence from the Survey of Consumer Finances, 83 FED. RESERVE BULL. 1, 18-19 tbl.11 (1997); Paul C. Bishop, A Time Series Model of the U.S. Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5; Peter S. Yoo, Still Charging: The Growth of Credit Card Debt Between 1992 and 1995, REV. (Federal Reserve Bank, St. Louis), Jan.-Feb. 1998, at 22 tbl.3.
118. Recent analyses of the Federal Reserve's 1995 Survey of Consumer Finances, moreover, confirm that these trends did not end in 1992. Over at least the next few years, lower-income households continued to take on consumer debt at a faster pace than upper-income households. See Arthur B. Kennickell, et al., Family Finances in the U.S.: Recent Evidence from the Survey of Consumer Finances, 83 FED. RESERVE BULL. 1, 18-19 tbl.11 (1997); Paul C. Bishop, A Time Series Model of the U.S. Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5; Peter S. Yoo, Still Charging: The Growth of Credit Card Debt Between 1992 and 1995, REV. (Federal Reserve Bank, St. Louis), Jan.-Feb. 1998, at 22 tbl.3.
119. Recent analyses of the Federal Reserve's 1995 Survey of Consumer Finances, moreover, confirm that these trends did not end in 1992. Over at least the next few years, lower-income households continued to take on consumer debt at a faster pace than upper-income households. See Arthur B. Kennickell, et al., Family Finances in the U.S.: Recent Evidence from the Survey of Consumer Finances, 83 FED. RESERVE BULL. 1, 18-19 tbl.11 (1997); Paul C. Bishop, A Time Series Model of the U.S. Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 5; Peter S. Yoo, Still Charging: The Growth of Credit Card Debt Between 1992 and 1995, REV. (Federal Reserve Bank, St. Louis), Jan.-Feb. 1998, at 22 tbl.3.
120. Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299 (1978). See also Donald C. Langevoort, Statutory Obsolescence and the Judicial Process: The Revisionist Role of the Courts in Federal Banking Regulation, 85 MICH. L. REV. 672, 685-86 (1987); Vincent D. Rougeau, Rediscovering Usury: An Argument for Legal Controls on Credit Card Interest Rates, 67 U. COLO. L. REV. 1, 1-11 (1996).
121. Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299 (1978). See also Donald C. Langevoort, Statutory Obsolescence and the Judicial Process: The Revisionist Role of the Courts in Federal Banking Regulation, 85 MICH. L. REV. 672, 685-86 (1987); Vincent D. Rougeau, Rediscovering Usury: An Argument for Legal Controls on Credit Card Interest Rates, 67 U. COLO. L. REV. 1, 1-11 (1996).
122. See Richard P. Eckman, The Delaware Consumer Credit Bank Act and 'Exporting' Interest Under Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 39 BUS. LAW. 1264, 1264-70 (1984); Langevoort, supra note 94, at 686 ; William J. Janklow, South Dakota and Financial Deregulation, 168 BANKERS MAG., Sept.-Oct. 1985, at 32, 32-34.
123. See Richard P. Eckman, The Delaware Consumer Credit Bank Act and 'Exporting' Interest Under Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 39 BUS. LAW. 1264, 1264-70 (1984); Langevoort, supra note 94, at 686 ; William J. Janklow, South Dakota and Financial Deregulation, 168 BANKERS MAG., Sept.-Oct. 1985, at 32, 32-34.
124. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
125. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
126. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
127. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
128. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
129. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
130. See GLENN B. CANNER & JAMES T. FERGUS, THE EFFECTS ON CONSUMERS AND CREDITORS OF PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES 16-19 (Board of Governors of Fed. Reserve System Paper No. 154, 1987); James M. Ackerman, Interest Rates and the Law: A History of Usury 1981 ARIZ. ST. L.J. 61, 61-110 (1981); William F. Baxter, Section 85 of the National Bank Act and Consumer Welfare, 1995 UTAH L. REV. 1009, 1023 (1995); Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 221-42 (1986); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (FDIC, Washington, D.C.), Mar. 1998, at 4, 7-10; Douglas F. Greer, Rate Ceilings and Loan Turndowns, 30 J. Fin. 1376, 1376-83 (1975); Daniel J. Villegas, The Impact of Usury Ceilings on Consumer Credit, 56 S. ECON J. 126, 126-41 (1989).
131. During the late 1910s and 1920s, many states enacted small-loan laws that set maximum monthly interest rates of about 3 to 3.5 percent. Installment credit offered by banks was generally capped during the 1930s at annual rates of between 6 and 12 percent, although retail installment credit was generally exempted from usury caps until the 1940s and especially the 1950s. As credit cards spread, particularly in the 1960s, they too were soon brought under statutory interest rate caps. See EVANS CLARK, FINANCING THE CONSUMER (1930);
132. BARBARA CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION (1965); Ackerman, supra note 96, at 103-104; Marion Benfield, Money, Mortgages and Migraine - The Usury Headache, 19 CASE W. RES. L. REV. 819, 819-99 (1968); Robert W. Johnson, Regulation of Finance Charges on Consumer Installment Credit, 66 MICH. L. REV. 81, 81-114 (1967); Robin A. Morris, Consumer Debt and Usury: A New Rationale for Usury, 15 PEPP. L. REV. 151, 151-79 (1988).
133. BARBARA CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION (1965); Ackerman, supra note 96, at 103-104; Marion Benfield, Money, Mortgages and Migraine - The Usury Headache, 19 CASE W. RES. L. REV. 819, 819-99 (1968); Robert W. Johnson, Regulation of Finance Charges on Consumer Installment Credit, 66 MICH. L. REV. 81, 81-114 (1967); Robin A. Morris, Consumer Debt and Usury: A New Rationale for Usury, 15 PEPP. L. REV. 151, 151-79 (1988).
134. BARBARA CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION (1965); Ackerman, supra note 96, at 103-104; Marion Benfield, Money, Mortgages and Migraine - The Usury Headache, 19 CASE W. RES. L. REV. 819, 819-99 (1968); Robert W. Johnson, Regulation of Finance Charges on Consumer Installment Credit, 66 MICH. L. REV. 81, 81-114 (1967); Robin A. Morris, Consumer Debt and Usury: A New Rationale for Usury, 15 PEPP. L. REV. 151, 151-79 (1988).
135. BARBARA CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION (1965); Ackerman, supra note 96, at 103-104; Marion Benfield, Money, Mortgages and Migraine - The Usury Headache, 19 CASE W. RES. L. REV. 819, 819-99 (1968); Robert W. Johnson, Regulation of Finance Charges on Consumer Installment Credit, 66 MICH. L. REV. 81, 81-114 (1967); Robin A. Morris, Consumer Debt and Usury: A New Rationale for Usury, 15 PEPP. L. REV. 151, 151-79 (1988).
136. See infra Table 2.
137. 1998 PRESIDENT ECON. REP. 366.
138. Lawrence M. Ausubel, The Failure of Competition in the Credit Card Market, 81 AM. ECON. REV., March, 1991, at 50, 75.
139. Id. at 56.
140. Lawrence M. Ausubel, Credit Card Defaults, Credit Card Profits, and Bankruptcy, 71 AM. BANKR. L.J. 249, 264 (1997).
141. Table 2 reflects data drawn from the following sources: 1980-89 BOARD OF GOVERNORS OF THE FED. RESERVE SYS., ANN. STAT. DIG., tbl.39 (1991); 1992 BOARD OF GOVERNORS OF THE FED. RESERVE SYS. ANN. STAT. DIG., tbl.39 (1993); Fed. Reserve Stat. Release, June 5, 1998, G.19 (Consumer Credit - Terms of Credit); Fed. Reserve Stat. Release, June 15, 1998, H.15 (Selected Interest Rates - Historical Data); 1998 PRESIDENT ECON. REP. tbl.B-60. Credit card interest rates through 1990 represent un-weighted averages of the "most common" rates reported quarterly by banks to the Federal Reserve. Credit card rates for 1995 and 1997 represent "the stated APR averaged across all credit card accounts at all reporting banks" (according to the Federal Reserve Statistical Release).
142. Table 2 reflects data drawn from the following sources: 1980-89 BOARD OF GOVERNORS OF THE FED. RESERVE SYS., ANN. STAT. DIG., tbl.39 (1991); 1992 BOARD OF GOVERNORS OF THE FED. RESERVE SYS. ANN. STAT. DIG., tbl.39 (1993); Fed. Reserve Stat. Release, June 5, 1998, G.19 (Consumer Credit - Terms of Credit); Fed. Reserve Stat. Release, June 15, 1998, H.15 (Selected Interest Rates - Historical Data); 1998 PRESIDENT ECON. REP. tbl.B-60. Credit card interest rates through 1990 represent un-weighted averages of the "most common" rates reported quarterly by banks to the Federal Reserve. Credit card rates for 1995 and 1997 represent "the stated APR averaged across all credit card accounts at all reporting banks" (according to the Federal Reserve Statistical Release).
143. Table 2 reflects data drawn from the following sources: 1980-89 BOARD OF GOVERNORS OF THE FED. RESERVE SYS., ANN. STAT. DIG., tbl.39 (1991); 1992 BOARD OF GOVERNORS OF THE FED. RESERVE SYS. ANN. STAT. DIG., tbl.39 (1993); Fed. Reserve Stat. Release, June 5, 1998, G.19 (Consumer Credit -Terms of Credit); Fed. Reserve Stat. Release, June 15, 1998, H.15 (Selected Interest Rates - Historical Data); 1998 PRESIDENT ECON. REP. tbl.B-60. Credit card interest rates
144. Given our emphasis on the role of inflation in limiting the ability of consumer lenders (and especially credit card issuers) to charge adequate risk premiums and thus to reach very far into the lower portions of the income distribution prior to the 1980s, one might wonder whether adequate risk premiums were feasible before the sharp increase in inflation in the late 1960s and particularly the early 1970s. The reason that this question is not addressed in the text above is that the modern credit card industry barely existed before the late 1960s. Although store-specific "charge-plates" emerged toward the end of the 1920s, the universal credit card was definitely a postwar phenomenon. The Diner's Club card, which Lewis Mandell describes as "the first modem credit card," appeared in 1949; and American Express arose as a competitor in 1958. These were in fact charge cards since balances had to be paid monthly. According to Ellis, "Credit cards evolved from charge cards when banks entered the industry as issuers in the late 1950s. Banks issued general purpose credit cards that allowed balances to be carried over from month to month." Ellis, supra note 96, at 4. Bank of America launched the first national card operation in 1966 under the brand name BankAmericard (later Visa). Mastercard made its appearance that same year. Together, BankAmericard and Mastercard dramatically expanded the size and reach of the industry, particularly over the next decade. "By any standards," Mandell observes, "the growth of the credit card industry in the 1970s was remarkable." LEWIS MANDELL, THE CREDIT CARD INDUSTRY: A HISTORY 52 (1990); see also id., at xi-xv, 22-52.
145. The ratio of 50th to 10th percentile earnings among male, full-time, year-round workers started rising steadily after 1979, while the 90/10 ratio began rising steadily after 1981. See Inequality and Economic Rewards, 1997 PRESIDENT ECON. REP. 163-188. See also id. at 168 chart 5-2.
146. It is also possible that demand for credit increased as a result of a decline in stigma associated with borrowing (as distinct from a decline in stigma associated with bankruptcy).
147. On the growth of home equity lending in the late 1980s and early 1990s, see Glenn B. Canner et al., Recent Developments in Home Equity Lending, 84 FED. RESERVE BULL. 241, 242 (1998) ("Following the 1986 tax changes, lenders began to promote home equity lending aggressively and greatly expanded the availability of such credit"); Kennickell, et al., supra note 93, at 16 (1997); Francesca Eugeni, Consumer Debt and Home Equity Borrowing, ECON. PERSP. (Federal Reserve Bank, Chicago, Ill.), MAR.-APR. 1993, at 2, 2-13.
148. On the growth of home equity lending in the late 1980s and early 1990s, see Glenn B. Canner et al., Recent Developments in Home Equity Lending, 84 FED. RESERVE BULL. 241, 242 (1998) ("Following the 1986 tax changes, lenders began to promote home equity lending aggressively and greatly expanded the availability of such credit"); Kennickell, et al., supra note 93, at 16 (1997); Francesca Eugeni, Consumer Debt and Home Equity Borrowing, ECON. PERSP. (Federal Reserve Bank, Chicago, Ill.), MAR.-APR. 1993, at 2, 2-13.
149. Consumer Debt and Bankruptcy: Hearings Before the Subcomm. on Admin. Oversight and the Courts of the Comm. on the Judiciary, 105th Cong., 1st Sess. (April 11, 1997) (statement of Kim Kowalewski, Chief, Financial and General Macroeconomic Analysis Unit, Macroeconomic Analysis Division), available in 1997 WL 176642 (F.D.C.H.) at 6-7. We should also note that by plotting household debt as a percentage of personal disposable income against nonbusiness bankruptcy cases per million adults from 1962 to 1996, Kowalewski finds a fairly good correlation over the entire period. Id. This would imply that after correcting for changes in disposable income, the size of the adult population, and the non-consumer portion of household debt, the post-1985 takeoff in filings per dollar of real consumer credit might not actually be as extraordinary as we have suggested. However, if one runs Kowalewski's series further back in time (that is, prior to 1962), the correlation that he identifies disappears.
150. Figure 3 reflects data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 370, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970 211, 989 (1975). Total household debt includes both consumer and mortgage debt.
151. Figure 3 reflects data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 370, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970 211, 989 (1975). Total household debt includes both consumer and mortgage debt.
152. Figure 3 reflects data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 370, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970 211, 989 (1975). Total household debt includes both consumer and mortgage debt.
153. Figure 3 reflects data drawn from the following sources: 1998 PRESIDENT ECON. REP. 349, 370, 372; 1940-1995 U.S. CTS. ADMIN. OFFICE BANKR. STAT. REP.; 1920-1939 ATT'Y GEN. ANN. REP.; U.S. DEP'T OF COMMERCE, STATISTICS OF THE UNITED STATES, COLONIAL TIMES TO 1970 211, 989 (1975). Total household debt includes both consumer and mortgage debt.
154. Indeed, delinquency rates on both traditional home equity loans and home equity lines of credit are considerably lower than delinquency rates on credit card loans. About 1-1/4 percent of all home equity debt is typically past due as compared to over 5 percent of bank credit card debt. See Canner et al., supra note 107, at 247.
155. Table 3 reflects data drawn from 1998 PRESIDENT ECON. REP. 318, 352, 372 and Canner, et al., supra note 68, at 330, 332. Total household debt includes both consumer and mortgage debt. Note that even though the share of total household debt declined for households earning under $50,000, this still represented an increased burden for them since their share of national disposable income had declined even more dramatically, from 45.3% in 1983 to 35.5% in 1992. Canner et al, supra note 68, at 330 tbl.4, 332 tbl.6.
156. Canner, Durkin and Luckett report that in recent years home-equity borrowing has become more popular with "homeowners with relatively low incomes, limited equity, or tarnished credit histories." Canner et al., supra note 107, at 249. They refer to this as the "'subprime' segment of the market." Id. Although this might appear to represent a departure from the trend identified above (in which secured debt moved up the income distribution and unsecured debt moved down), these commentators explain that subprime home-equity loans are more properly classified with unsecured debt: [Such loans] typically lift a borrower's total mortgage debt to a high level relative to the value of the home. Some subprime specialists offer to lend amounts that would raise that ratio to 125 percent, and in a few instances, even higher. Subprime home equity loans are commonly marketed as bill-consolidation loans, particularly as a means to pay off credit card debt. Given their pricing, collateral, and performance characteristics - relatively high rates of charge-off and delinquency -these real-estate secured loans are more akin to unsecured personal loans than to mainstream home-equity loans. Id. (footnote omitted).
157. Sullivan, Warren and Westbrook made the following comparison between the two groups: At the national median, families reported mortgages of $21,000, whereas our debtors' median mortgage value was $23,714. These data show that bankrupt homeowners carry mortgages of roughly the same size as those of most homeowning Americans. It is nonmortgage consumer debt that shows vast differences between people generally and debtors in bankruptcy. . . . Median consumer debts were $2,400 nationally, in stark contrast with the median bankrupt debtor's burden of $10,800. SULLIVAN ET AL., supra note 62, at 69
158. Bishop, supra note 93, at 5-7.
159. Unfortunately, this important distinction between secured and unsecured debt is often downplayed or overlooked altogether in discussions related to consumer bankruptcy. The 1998 Economic Report of the President, for example, notes with some puzzlement that "although the aggregate debt service burden has climbed recently, it remains below its late-1980s levels, yet the bankruptcy rate has continued to rise." 1998 PRESIDENT ECON. REP. 75.
160. By contrast, the mean level of both secured and unsecured debt held by bankruptcy filers fell over this period, by 13 and 11 percent, respectively. See infra Table 4.
161. Morris, supra note 84, at 95.
162. Russ, supra note 84, at 148. See also Gross, supra note 84, at 83-84 ("[W]ith few exceptions, the [1984 Consumer Credit] Amendments shift the balance of rights decidedly in favor of creditors. Because of that shift, virtually all provisions of the Amendments impinge in some respect on the individual debtor's ability to obtain a fresh start. This result is a natural consequence of shifting the balance of rights between the debtor's desire to obtain a discharge of prefiling indebtedness and her creditors' desire to maximize the recovery of sums due them").
163. Consumer Lenders Love the New Bankruptcy Law, BUS. WEEK, Aug. 13, 1984, at 105, 105.
164. Reint Gropp et al., Personal Bankruptcy and Credit Supply and Demand, 62 Q.J. ECON. 217, 245 (1997).
165. Id.
166. See Richard A. Brown, Time Series Analysis of State-Level Personal Bankruptcy Rates, 1970-1996, BANK TRENDS (FDIC, Washington, D.C.), Feb. 1998, at 7 tbl.2 ; Ellis, supra note 39, at 7. See also Shiers & Williamson, supra note 39, at 291 ("Lenders in low exemption states devote fewer resources to risk reduction activities and consequently make more bad loans than lenders in high exemption states because the cost of making bad loans in low exemption states is less than the cost of making bad loans in high exemption states"); Zandi, supra note 39, at 18-19 & 20 tbl.2; see also id. at 18-19 ("Tougher bankruptcy laws will simply induce lenders to ease their standards further. The losses resulting from increased bankruptcies will all but offset the gains resulting from increased recoveries on creditors' net losses").
167. Arthur Laffer's famous curve traced the relationship between tax rates and tax revenues. Laffer reasoned that under certain circumstances, a reduction in tax rates could actually increase tax revenues by stimulating additional work effort. He began his analysis by considering what would happen under extreme tax rates. At a tax rate of zero percent, government revenues would obviously be zero. Interestingly, though, revenues would also be zero at a tax rate of 100 percent, since no one would bother to work knowing that all earnings would immediately be confiscated. Given these endpoints, Laffer concluded that there had to be some range in which a tax rate cut would lead to an increase in tax revenues. For a further discussion of the Laffer Curve, see JUDE WANNISKI, THE WAY THE WORLD WORKS 97-115 (Simon & Schuster rev. ed., 1983).
168. Curiously, history suggests that even an incredibly stringent bankruptcy law will not drive borrowing and therefore filings to zero. When a debtor failed to make good on his commitments in early Rome, the prevailing law allowed his creditors to sell him as a slave and retain the proceeds, or to kill him and cut his body into pieces for distribution. Even with such a severe law, however, some individuals were apparently willing to take on debt and suffer the consequences in the event of default. See, e.g., Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160, 161 (1991), for a discussion on debtor-creditor law in early Rome,. The Roman law was recorded on the Twelve Tablets around 451 B.C. See Andrew J. Duncan, From Dismemberment to Discharge: The Origins of Modern American Bankruptcy Law, 100 COM. L.J. 191, 191 (1995).
169. Curiously, history suggests that even an incredibly stringent bankruptcy law will not drive borrowing and therefore filings to zero. When a debtor failed to make good on his commitments in early Rome, the prevailing law allowed his creditors to sell him as a slave and retain the proceeds, or to kill him and cut his body into pieces for distribution. Even with such a severe law, however, some individuals were apparently willing to take on debt and suffer the consequences in the event of default. See, e.g., Rhett Frimet, The Birth of Bankruptcy in the United States, 96 COM. L.J. 160, 161 (1991), for a discussion on debtor-creditor law in early Rome,. The Roman law was recorded on the Twelve Tablets around 451 B.C. See Andrew J. Duncan, From Dismemberment to Discharge: The Origins of Modern American Bankruptcy Law, 100 COM. L.J. 191, 191 (1995).
170. As used in Figure 4, the terms "Less Restrictive" and "More Restrictive" relate to the treatment of debtors under bankruptcy law. A less restrictive law would be relatively lenient on debtors, whereas a more restrictive law would be relatively tough on debtors. From any point on the less restrictive half of the curve, a tightening of the bankruptcy law will (surprisingly) generate an increase in the number of bankruptcy filings.
171. It may be that consumer creditors are simply better monitors or predictors of risky borrowing behavior (i.e., borrowing that is likely to lead to default and ultimately to bankruptcy) than are most consumer debtors. If this were the case, then lending would be "optimized" (i.e., bankruptcy rates would be reduced toward a socially optimal level) by shifting more of the cost of consumer bankruptcy onto the creditors through "pro-debtor" bankruptcy legislation. This reasoning is somewhat analogous to Calabresi and Hirschoff's concept of shifting tort liability onto the "cheapest cost avoider." See Guido Calabresi & John T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055, 1083 (1972). Here, however, the idea is to shift cost onto the best monitor of risky borrowing behavior.
172. Teresa A. Sullivan et al., Consumer Debts Ten Years Later: A Financial Comparison of Consumer Bankrupts 1981-1991, 68 AM. BANKR. L.J. 121, 128 tbl. 1 (1994). The data reflected in Table 4 is drawn from this source.
173. Id.
174. See Table 1, supra.
175. See Rougeau, supra note 94, at 40-45. Despite the difficulty of finding the most appropriate interest rate spread, a floating cap on [credit card] interest rates is probably the best way to set a maximum rate. The easiest benchmark rate to use would be the prime lending rate, because this rate tends to set the standard for a great deal of consumer borrowing. Id. at 41-42. In 1987, the House of Representatives considered (but rejected) an amendment to a consumer credit bill that would have limited credit card interest rates to eight percentage points above the rate on one-year U.S. treasury bills. Id. at 11 n.36.
176. See supra note 100 and accompanying text.
177. Many bankruptcy scholars distinguish between default and bankruptcy. Debtor default (and the creditor losses associated with it) would occur even in the absence of the legal institution called bankruptcy. Without a bankruptcy system, someone would still bear the costs of default. Perhaps, under the state law collection system, those costs would be borne entirely by unsecured creditors or employees or suppliers or landlords or creditors with loans secured by inventory that is difficult to monitor. But speculation on what would happen at state law is nothing more than the substitution of a different distributional scheme - one created indirectly by focus on the collection of a single debt rather than one [such as bankruptcy law] created deliberately with an overriding attention to widespread default. Elizabeth Warren, Bankruptcy Policy, in CORPORATE BANKRUPTCY ECONOMIC AND LEGAL PERSPECTIVE 73, 82 (Jagdeep S. Bhandari and Lawrence A. Weiss, eds., 1996). Similarly, Walter D. Coles criticized Solicitor General Thacher in 1931 for placing "the onus of 'wiping out' [a] vast aggregate of claims . . . on the Bankruptcy Law": The implication seems to be that but for the Bankruptcy Law these claims would have been collected by the creditors. Every creditor has learned from experience that when his debtor becomes insolvent and fails in business the debt usually is 'wiped out' in a practical sense. This was so before we had a bankruptcy law. . . . It is generally the insolvency and failure of the debtor that 'wipes out' the debt and it makes little difference whether or not he goes into bankruptcy Coles, supra note 38, at 320-21.
178. It is worth noting that any attempt to amend federal bankruptcy law so as to restrict consumer access to discharge would necessarily compromise this insurance function.