Spatial variations in personal insolvency choices: The role of stigma and social capital

Abstract

This paper offers an explanation for the wide spatial variations in choice of insolvency route by personal debtors across local authorities in England and Wales. It is argued that formal bankruptcy has a more negative impact on social capital through stigma effects than the alternative of Individual Voluntary Arrangements. Consequently, spatial variations in choices are related to variations in social capital. The hypotheses derived from this approach are tested through the use of spatial econometric models utilising data from England and Wales. The results provide support for a positive link between variables related to social capital (age, mobility and home ownership) and choice of IVAs. It is argued that avoidance of stigma costs provides an explanation for the apparent paradox of the significant growth of IVAs despite their high cost to debtors compared to bankruptcy. Whilst there is only limited support for impacts directly related to the urban-rural environment, significant spatial interdependencies in choices across neighbouring areas are also uncovered.

‘I call it the dark side’: Stigma, social capital and social networks in a disadvantaged neighbourhood

“…Increasingly, however, diverse theorists argue that it is specific social and economic demographic structures (such as disadvantage) rather than the spatial urban/rural divide that influences the prevalence of particular types of social capital in certain environments (see Agampodi et al, 2015; Bishop 2016; De Silva et al, 2007; Woolcock and Narayan, 2000). This does not imply that spatial factors are insignificant.…”

“…This does not imply that spatial factors are insignificant. As Bishop (2016) notes, interactions that either strengthen or violate attitudinal or behavioural norms may function to reinforce existing spatial clusters, a factor underscoring the relationship between social networks, social capital, and stigma production.…”

Personal Bankruptcy Systems in the EU – Measuring Leniency

“…Contrary to some other theoretical approaches, their empirical data suggest that experiences social stigma is pervasive throughout the study participants, who show many signs of undergoing a traumatic or stigmatized, social event. Further to this, Bishop (2017) for the UK and Wales found, that stigma from undergoing a process of consumer bankruptcy has a more negative impact on social capital than informal voluntary arrangements, even if the latter give a suboptimal outcome for the consumer debtor. Bishop (2017, p. 3752) attributed the deepfelt stigma from undergoing the consumer bankruptcy process to historical notions of wrongdoing, social condemnation, and public shaming.…”

“…Bishop (2017, p. 3752) attributed the deepfelt stigma from undergoing the consumer bankruptcy process to historical notions of wrongdoing, social condemnation, and public shaming. Having regard to the studies from other social disciplines than economics (Thorne andAnderson 2006, andBishop 2017) it becomes a tad hollow, when (White 1998) considered it begged a question why more households didn't file for consumer bankruptcy in the US, given that she found a considerable number of households would actually gain an economical benefit from doing so. She considered two explanations; either that creditors simply do not ask and secondly an options value explanation.…”