Over the past fifty years, American households have increasingly relied on borrowing to make ends meet. For most families, growth in household debt has outpaced growth in wages. Credit fills the gap between stagnant incomes and rising expenditures. As a result, many families struggle under unmanageable debt obligations. So, what happens when households do not pay their debts? This course focuses on the laws that govern when debtors default: state laws allocating rights and remedies between debtors and creditors and federal consumer bankruptcy law. We will examine both legal doctrines and the public policy debates that shape their development.
We will first consider why families incur debt, where they borrow, and how debt fits into the household balance sheet. We will also explore how law has encouraged the proliferation of certain forms of debt and aided the flow of capital into the consumer credit industry. Then, we will examine what rights the law gives to creditors to collect from debtors – such as through self-help repossession, court-sanctioned seizure and sale of the debtor’s property, garnishment of wages, and foreclosure of residential mortgages. We will likewise study the scope of debtors’ substantive rights and procedural protections, and the limits they place on debt collection activities. Finally, we will delve into the law of consumer bankruptcy, exploring how the system works, who can file, what debts may be discharged, and the range of post-bankruptcy outcomes of debtors who file. Throughout the course, we will consider not only the formal legal rules governing household debt, but also how those rules work in the real world.