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Journal article

Misfortune or misdeed: an empirical study of public attitudes towards personal bankruptcy

1 Oct 2017

While the field of bankruptcy scholarship is well established, there has so far been very little scholarly investigation of the social context in which bankruptcy occurs. Scholars, politicians and other commentators tend to discuss this subject under the rubric of 'bankruptcy stigma’. Yet these discussions generally draw upon interviews with debtors, or other indirect indicators of public opinion, such as newspaper articles. They are seldom based upon surveys or interviews with members of the public. To date, only three empirical studies have investigated public attitudes to bankruptcy in this way. These three studies were all carried out by the Insolvency Service ('IS’) in the United Kingdom ('UK’) in the 2000s, as part of an evaluation of legal reforms introduced by the Enterprise Act 2002. This Act reduced the period of bankruptcy from three years to one, with the explicit objective of reducing the stigma associated with bankruptcy. While the IS studies detected a decline in the stigmatisation of bankruptcy in the UK between 2004 and 2009, they found no evidence that this change was caused by the Enterprise Act reforms. This finding is especially pertinent to Australia, where policymakers have recently outlined a series of proposals that closely resemble the UK reforms, both in substance and in rhetoric.

While the IS studies are a valuable resource for empirical researchers, they are limited in scope. Surveying a sample 'designed to be representative’ of the general community, they evoke public attitudes in aggregate terms, without attempting to identify differences based on demographic factors such as gender or age, or other attributes such as direct, personal experience of bankruptcy. Requiring respondents to 'agree’ or 'disagree’ with a series of generalised statements about bankrupt debtors, the IS studies offer little scope for the expression of nuanced or equivocal views on bankruptcy. They also afford little insight into the wider cultural, political and historical influences on public perceptions of bankruptcy. Moreover, the IS studies make no attempt to relate their findings to existing scholarship on bankruptcy stigma or the causes of unmanageable debt. This narrow focus is of course appropriate, given that that the purpose of the IS studies was purely to assess the impact of the Enterprise Act over a relatively short period. At the same time, these studies illustrate the pressing need for further, more finely grained, analytically nuanced and scholarly empirical research on public attitudes to bankruptcy.

This article describes the first scholarly empirical study of public attitudes to bankruptcy to be conducted in any jurisdiction. Based upon an online survey of over 2000 Australians, the study provides a unique insight into public views on bankruptcy and the prevalence of bankruptcy stigma in Australia. The study finds considerable evidence that bankruptcy arouses disapproval, with many respondents associating bankruptcy with poor financial management, extravagance and greed. Yet it also shows that, in Australia, bankruptcy is frequently associated with the stereotypical figure of the dishonest, 'high-flying’ businessman. In this sense, it points to significant cultural differences between Australia and the United States ('US’), where the stereotypical bankrupt is 'a high school dropout’ with 'an unskilled or, at best, semiskilled job’. The study also finds evidence of widespread sympathy for debtors on modest incomes who go bankrupt as a consequence of unemployment, illness or other unforeseeable events. It demonstrates that many Australians view bankruptcy as a complex phenomenon, arising from a wide variety of circumstances. The study also indicates that the term 'stigma’ does not fully convey the complexity of Australians’ attitudes to bankruptcy. It shows that many Australians do not hold rigid or unequivocal views on the subject, but instead, often combine a generalised sense of disapproval with considerable sympathy for individual debtors and a recognition of the suffering associated with financial failure. These findings have important implications, not only in Australia, but in other jurisdictions in which 'bankruptcy stigma’ is the subject of scholarly and political debate.

The article begins, in Part II, by providing an overview of academic and public policy debates regarding the nature and extent of 'bankruptcy stigma’, in the US, the UK and Australia. Part III outlines the aims and significance of the article. It describes the methodology employed by the authors in conducting a survey of 2000 Australians, in early 2016. Part IV outlines the results of this survey. It identifies statistically significant differences in respondents’ views, based on their gender, age and personal experience of bankruptcy. It also outlines the most important themes emerging from respondents’ extended comments, in an open-ended question at the end of the survey. Part V analyses these findings, drawing out their implications for bankruptcy scholars, as well as for Australian policymakers. It concludes that the concept of 'stigma’ does not fully encapsulate the complex, ambivalent attitudes revealed by the survey. It suggests that the term, 'shame’, facilitates a more nuanced account of the way in which bankruptcy commands public sympathy, even as it elicits equally strong feelings of disapproval.

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