Into the Debt Quagmire : How Defaulters cope with Severe Debt Problems
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AbstractThe overall ambition of this study is to provide a better understanding of how people cope with severe debt problems and why defaulters sometimes act in financially unwise ways. The empirical results suggest that coping behaviour is based on a social rather than an economic orientation. In particular, the analysis shows that the process typically has three stages. During the first, financial problems accumulate without being recognised as hazardous. At ‘stage two’ the full threat is realised, and a combat against downward social mobility is launched. At ‘stage three’ the downfall is a fact and the defaulters turn to safeguarding new but unwanted lifestyles. Even though access to resources in a broad sense has decisive impacts on the end result of such processes, informants with working class and middle class backgrounds alike suffer substantial material and status losses. The most severe downfalls are found among those who prior to ‘stage one’ had climbed from working class to middle class positions.
‘Stage three’ is qualitatively different from the two previous phases. From now on, the re-payment norm is replaced by a new moral code that permits the defaulters to leave their debts unattended. Hence, the debt loads continue to increase at the same time as the defaulters ap-pear increasingly difficult to deal with from a creditor’s point of view. The analysis strongly suggests that society has everything to gain from preventing ‘stage three’ from developing. This calls for a functional money collection system and easy access to economic counselling.
The study is based on twenty interviews with people with severe debt problems. Built on Habermas’ distinction between the ‘system world’ and ‘life world’, the analysis takes as its point of departure that any economic actor — including defaulters — aim at transforming economic resources into coveted social statuses by complying with class- and status-specific constraints known in classic sociology as ‘standard packages’. Whenever debt problems oc-cur, standard package orientations translate into a principle of avoiding social downfalls. As the defaulters’ lifestyles increasingly lack financial foundation, the continuous compliance with such constraints leads to irrational behaviour from an economic point of view.