Attribution theory bias and the perception of abuse in consumer bankruptcy

Currently pending in the United States Congress is a dramatic reform proposal of the consumer bankruptcy law. The reform proposal aims to significantly curtail bankruptcy relief to financially troubled individuals. The reform is premised in part on the widely held belief that the rather broad fresh-start opportunities currently provided by the bankruptcy system are, by and large, abused by consumers. Many reform proponents contend that clever manipulators. and not the truly needy, are the primary users of bankruptcy. Refuting this widely held belief, a number of scholars have empirically tested the assertions of abuse and found that widespread abuse in bankruptcy is largely a perceived phenomenon, not well grounded in facts. Using attribution theory, this article attempts to explain the widespread public perception of abuse in consumer bankruptcy despite the lack of robust evidence to that effect. At the most fundamental level, attribution theory addresses the question of how people identify the causes of human behavior. Under attribution theory, one may postulate that people perceive pervasive abuse in consumer bankruptcy because of the way they explain and identify the causes of the underlying behavior of bankruptcy filing. The public tends to explain the behavior of bankruptcy filing by attributing fault or blame to the bankruptcy petitioner. Because the public perceives bankruptcy filing to be the product of the debtor's own fault, the public does not regard the petitioner as deserving much protection. Hence, by virtue of debtors' resorting to such protection in bankruptcy, the public tends to generally view such conduct as indicative of inherent abuse of the system. The public's perception of bankruptcy is not baud on an objective reading of behavioral facts and empirical figures. Instead, the public's perception of the bankrupt population is largely distorted from reality due to individuals' inherent cognitive deficiencies, their tendency to over-attribute personal fault and under-attribute external factors to the act of bankruptcy filing, as well as their motivational and stereotyping biases. Based on the application of these attribution theory biases to bankruptcy, this article then hypothesizes that a similar disparity would exist between the perception of abuse and the reality of abuse in the Israeli consumer bankruptcy context. As no study has ever been conducted outside the United States to empirically test the extent to which bankruptcy abuse is prevalent, this article undertakes the first step to fill the gap in the comparative bankruptcy literature on the issue of abuse. Based on an analysis of2/3 bankruptcy files collected in Israel in the late 1990s, this study suggests that despite the widespread perception of bankruptcy abuse in Israel, the vast majority of Israeli bankruptcy petitioners, like their counterparts in the United States, do not abuse the bankruptcy system.