Harmonizing consumer insolvency law

In contrast to the cacophony created by Brexit, EU authorities have been working for several years on a project to move toward greater harmony among the discordant insolvency laws of the Member States. Though the project is focused on business rescue and restructuring, the Commission Recommendation "on a new approach to business failure and insolvency" makes specific reference to non-business cases, as well, as "Member States are invited to explore the possibility of applying these recommendations also to consumers" (para. 15).

A fantastic conference at Brunel University London this May explored the question whether there was a need for comprehensive EU intervention in the historically national-law arena of consumer debt relief. The conference presented several instructional vignettes on the varying situations in the UK, Germany, Italy, and Greece, as well as some reflections on the very limited degree of EU involvement in ensuring "fair" consumer credit markets as a supposed bulwark against overindebtedness. The presentations at the conference vividly illustrated the weakness of this supply-side-only approach, as well as the extreme divergence among exisiting European personal insolvency relief regimes. A fascinating book published in connection with this conference's greater project nicely illustrates the messy state of overindebtedness regulation in the EU today.

All of which has me thinking about a topic that recurs in the academic debate in the US from time to time:

To what degree is it desirable to achieve harmonization of overindebtedness regulation among varying geographical and political regions? Or from the opposite perspective, is some degree of difference acceptable or even preferable? For a particularly powerful expression of this debate, see Daniel Austin's excellent paper, Bankruptcy and the Myth of "Uniform Laws." I believe Dan's position is the dominant academic view in the US; that is, something approaching absolute uniformity is both desirable and perhaps required by the federal Constitution. But one comment at the Brunel conference resonated with me, especially as I reflected on the infamous US means test. A commenter from Germany noted that energy is especially expensive in Germany, imposing the second-highest costs on consumers in the EU (see p. 193 of the book). It is virtually beyond doubt that any harmonized EU personal insolvency scheme would involve imposed payment plans of some kind (likely for 3 years). Is it sensible to demand that all EU consumer debtors be subjected to the same budget for energy? Is it sensible for the US means test to subject debtors in Alaska and Hawaii (and other extremely expensive areas) to the same basic household budget for food and other necessities? I was surprised when the separate standards for Alaska and Hawaii were removed in January 2008, and the remark about the significant differences in energy costs in Germany reminded me of this "unfair equality" problem. [Incidentally, the US means test does include separate, county-level figures for utility costs.] And on the major focus of the US debate about non-uniformity, is it not somewhat desirable to allow states to choose what property exemptions are appropriate for their regions? Perhaps the extreme differences among US states illustrate the dangers of such a liberal approach, as extreme outliers cast the whole system into disrepute (and lead to undesirable forum shopping). But the EU project has me wondering more about the optimal degree of harmony--and doubting that monotony is really the best way to go.

Anyway, politically, I don't think the EU would presume to impose rigid, one-size-fits-all rules in this process. But the specific mention of a discharge period of no more than 3 years (see para 9 of the Commission Recommendation) has me challenging myself to identify the aspects of European consumer insolvency rules where divergence among national regimes is sensible ... and more importantly, the maximum magnitude of any such divergence.

The Brexit vote may have made the EU bureaucrats a bit more leery of stepping on national toes with supranational Directives, but the process of bringing some order to the chaos of European personal debt relief laws will and should go on. How far should it go?

Harmony image courtesy of Shutterstock