The Evolution of Bankruptcy Stigma

Abstract

Historically, individuals who file for bankruptcy protection have been viewed harshly by society. The negative perception of bankrupts was manifested in the punitive measures employed against bankruptcy petitioners, in the degrading public rituals directed at them, and in the contemptuous discourse used by officials to refer to the bankrupts. This traditional negative image of bankrupts was shared in colonial America, and vigorously continued throughout the Victorian era and into the 20th century. By the 1960s, a number of critics began to voice their concerns about the dramatic rise in consumer bankruptcy filings in the United States. The critics have mostly attributed the increase in filings to an alleged decline both in morals and in the shame associated with bankruptcy. Charges of the fading stigma of bankruptcy have recently intensified. A number of recent studies have attempted to corroborate assertions of the declining stigma of bankruptcy through the use of indirect variables as proxies. These attempts to measure bankruptcy stigma have been roundly criticized. The disapproval centers mainly on the studies’ failure to directly measure changes in public perception of bankruptcy. This study attempts to measure the evolution of stigma in bankruptcy by addressing the methodological concerns attributed to previous empirical studies on this subject. Rather than measuring bankruptcy stigma through the examination of indirect bankruptcy stigma proxies or through the questioning of former petitioners, this study measures evolving public perceptions about bankruptcy by examining the expressed sentiments of the general public. To ascertain whether the negative image of bankrupts has eroded in the United States over the past century and a half, 171 newspaper articles published between 1864 and 2002 about personal bankruptcy were examined for content. Examination of the content of personal bankruptcy related newspaper articles provides valuable information about the evolution of public perceptions of bankrupts during that period. This study detected a noticeable shift, beginning in the 1960s, in public attitudes towards individuals filing for personal bankruptcy. However, it did not find that the changing public perception necessarily prompted an increase in the bankruptcy filings.