Edited by Geraint Howells, Iain Ramsay, Thomas Wihelmsson and David Kraft
Chapter 14: Personal Insolvency
Johanna Niemi At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother because it is called the Lord’s release. (Deuteronomy 15:1–2) 1. Introduction We can hardly imagine a contemporary society without credit. Credit contributes in many ways to the economic growth of most societies. With credit, many households are able to improve their housing and living standards and to move their consumption forward to those phases of life when their needs are most pressing. We can even say that credit plays an important role in evening out consumption patterns across the generational cycle.1 The dark side of consumer credit is the risk of not being able to pay back. Credit is based on the expectation of future performance and, thus, always bound with risk. With the growth of credit, the occurrence of risk also becomes more frequent, even if only a small fraction of all debtors fail to pay back. Today, consumer debt problems occur on a large scale. Different measurements give different figures, but it is estimated that almost one fifth of European households experienced serious debt problems already before the current debt crisis.2 Debt problems can mean different things. Most people have experience of trouble in paying back – and most of them have sorted out their problem by talking to the creditor, paying...
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