1 Introduction
Just over two decades ago, the devastation caused by Hurricane Katrina coincided with controversial new legislation that restricted the debt relief offered to financially troubled households under US bankruptcy law (Skeel Reference Skeel2001, p. 187; Zackin and Thurston Reference Zackin and Thurston2024, Chapter 7). Scholars and activists expressed concerns as to how new limitations on access to debt discharge would impact hurricane victims who had lost financial resources but retained ongoing financial obligations (Czarnetzky Reference Czarnetzky2007; Lawless Reference Lawless2005). Apart from rare exceptions (O’Brien Reference O’Brien, Dehm, Graham and Nay2024), the link drawn at this time between weather events, household debt and bankruptcy has generally not been readily made in the intervening two decades, despite the evident reality that climate impacts extend beyond physical destruction to include widespread financial distress for individuals and small businesses (Financial Stability Board 2025, pp. 1–2, 10). This paper seeks to revive this discussion by exploring the role that debt relief policies – and particularly personal insolvency or bankruptcy lawFootnote 1 – might play as part of a range of responses necessary to raise capacity for individuals to withstand climate-related shocks (World Bank Group 2019, p. 6).
The promise of personal insolvency law lies in the provision of a ‘fresh start’ to financially troubled individuals. The core of the law involves an insolvent debtor being discharged from (most of) her debts on the condition that she transparently makes non-essential income and assets available to contribute reasonable repayments to creditors. Bankruptcy pauses debt collection activities against a debtor, before rationalising the uncertain and complicated situation of multi-faceted indebtedness and ultimately discharging unpayable debt. In this way, the law provides a second chance for the honest debtor to return to economic activity, free from the burden of historic debt. Classic perspectives on this fresh start policy have always recognised that it is not just of benefit to the individual debtor, but that it provides a broader societal benefit in restoring lost value and potential to the economy.Footnote 2 By offering protection for individuals against the losses of over-indebtedness, personal insolvency acts as a form of insurance against the unavoidable risks inherent in a volatile and unpredictable economy (Feibelman Reference Feibelman2005; Indarte Reference Indarte2023; Spooner Reference Spooner2019). It also serves to reduce negative externalities and to spread losses across markets, taking into account the abilities of sophisticated financial institutions to assess, mitigate and disperse risks, rather than concentrating losses on those individuals who often show the least relative capacity to bear them (World Bank 2014, paras 88–93). The impact of climate change represents one of the most pressing risks facing global society (Bolton et al. Reference Bolton, Després, da Silva, Samama and Svartzman2020, p. 5; Intergovernmental Panel on Climate Change 2023). Meanwhile, debt plays a central role in our contemporary economic order of financialised capitalism (Fraser Reference Fraser2016, p. 112), and is an important means of shifting risk between parties and groups (Mian and Sufi Reference Mian and Sufi2014, Chapter 12; Pistor Reference Pistor2019, pp. 77–79).
While at first glance they might be seen as distinct issues, Section 2 of this article explores how important connections can be drawn between the problem of individual over-indebtedness and the financial harm of climate impacts. Section 3 begins the presentation of personal insolvency as a safety net of last resort against individual-level financial risks, by highlighting gaps in protection offered by other measures such as commercial insurance markets and disaster aid programmes, which leave an unmet need for debt relief measures. Section 4 notes the disruptive impact of climate change on the legal system, and discusses the tension between a view that we should re-shape (all) legal institutions to adapt to this impact, and a countervailing preference to adopt more targeted and limited ‘crisis’ measures outside of ‘general’ legal institutions such as bankruptcy. This debate applies pointedly in personal insolvency – while on the one hand insight from personal insolvency could be used to develop a climate-focused adaptive informal debt resolution framework, on the other hand, debt – and particularly bankruptcy’s mechanism of debt discharge – is a fundamentally legal phenomenon, dependent for its efficacy on the mandatory force of law. Section 4 proceeds to make a case for personal insolvency reform as a form of rules-based advanced planning that can provide enhanced certainty in relation to the resolution of financial climate impacts, while safeguarding against the concerns of moral hazard persistently associated with debt relief policies.
Section 5 explores the limits and potential of personal insolvency in this role, noting the challenges in expanding access to an institution widely understood as benefitting most those with little left to lose. In particular, if bankruptcy is to take seriously its role in addressing climate risk, it may need to overcome the law’s typical unwillingness to extend its debt relief to secured home loans. The section argues that, despite these limitations, personal insolvency’s traditional ability to incorporate a plurality of policies and values nonetheless offers potential for a greener bankruptcy law, opening conversations as to how the law could incorporate climate goals. Section 6 concludes by reiterating the importance of personal insolvency in allocating financial losses associated with climate risks, in a context in which the significance to climate policy of private law ‘ground rules’ – shaping market relations between private actors – at times risks being overlooked. As an extraordinary exception to the law’s usual orientation toward upholding past obligations and facilitating market allocations (Howard Reference Howard1987, p. 1047), bankruptcy might represent an internal means of accommodating the challenges and contradictions with which climate change confronts the legal system.
2 Climate risks and debt
2.1 Climate impacts and problem debt
International organisations increasingly recognise that the economic impacts of climate change are negatively affecting the livelihoods and financial security of people across the world. This includes ‘impacts on human health and food security effects, destruction of homes and infrastructure, and loss of property and income, with adverse effects on gender and social equity’ (Intergovernmental Panel on Climate Change 2023, p. 51; World Meteorological Organization (WMO) and World Health Organization (WHO) 2025). Disproportionate effects have tended to be felt by the most vulnerable groups, including those in locations experiencing poverty, governance challenges, reduced access to basic services, violent conflict and dependence on economic activities particularly sensitive to climate (Bangalore et al. Reference Bangalore, Hallegatte, Bonzanigo, Kane, Fay, Narloch, Treguer, Rozenberg and Vogt-Schilb2016; Hallegatte and Rozenberg Reference Hallegatte and Rozenberg2017). Economic impacts of climate change often manifest for consumers and small businesses as debt problems – unmanageable debt burdens, default and over-indebtedness (Financial Stability Board 2025, p. 12). In relation to the occurrence of extreme weather events, research from advanced economies such as the USA and Canada has found that natural disasters are associated with declining credit scores and access to credit, as well as deteriorating mortgage repayment performance, higher debt burdens and increased debt collection activity (Ho et al. Reference Ho, Huynh, Jacho-Chávez and Vallée2023; Ratcliffe et al. Reference Ratcliffe, Congdon, Teles, Stanczyk and Martín2020). The negative effects on credit scores, default and mortgage foreclosure are particularly substantial for disadvantaged communities and those with low pre-disaster credit scores (Lim et al. Reference Lim, Shin and Ji2022), with some evidence of higher likelihood of bankruptcy among residents of low-income areas (Roth Tran and Sheldon Reference Roth Tran and Sheldon2017, p. 4). While the focus of this paper leans toward the more immediate debt problems associated with disasters and extreme weather events, slower-onset climate strains, as well as transition risks, also may raise questions as to the ability of households to service and sustain their indebtedness (Hammond Reference Hammond2025; World Meteorological Organization (WMO) and World Health Organization (WHO) 2025). At least one central bank has seen cause to examine how rising energy costs over time may put pressure on the ability of some households to meet long-term debt commitments such as mortgage loans (Adhikari et al. Reference Adhikari, Carroll and Lambert2023), particularly for lower-income groups unable to afford the energy efficiency upgrades that might mitigate these effects (Eryzhenskiy et al. Reference Eryzhenskiy, Giraudet and Segu2023; Greenland and Toth Reference Greenland and Toth2025).
2.2 Climate impacts and increasing debt burdens
Across both advanced and developing/emerging market economies, individuals tend to turn to increased borrowing as an insurance mechanism – credit can be a means of surviving immediate losses, in the expectation of making repayment once economic conditions improve (Montgomerie Reference Montgomerie2013; Udry Reference Udry1994). For example, one study of the aftermath of a hurricane in Texas found that households deployed credit, and availed of mortgage forbearance schemes, as a substitute for the advance adaptation of their homes to climate risks (Valle et al. Reference del Valle, Scharlemann and Shore2024). Another study of US natural disasters found that in localities where individual government disaster assistance was not available, both ‘prime’ and ‘subprime’ borrowers showed greater utilisation of existing lines of credit (Roth Tran and Sheldon Reference Roth Tran and Sheldon2017, pp. 17–19). Research from areas of Bangladesh prone to extreme weather events (flooding, cyclones and drought) shows that many impacted people felt obliged to borrow, often at high interest rates and potentially from informal lenders, as a means of meeting ongoing living costs and surviving the economic hardship of such events (Haq and Md Reference Haq and Md2022). Such loans often involved steep charges and interest rate increases in the event of default, creating spiralling debt repayment problems long after the immediate occurrence of an extreme weather event. This picture of high-cost subprime borrowing is consistent with findings that climate events can lead to reduced supply of fresh credit among mainstream lenders such as banks (David Reference David2011; Ratcliffe et al. Reference Ratcliffe, Congdon, Teles, Stanczyk and Martín2020, S45-7; Yang et al. Reference Yang, Zou, Lei, Ni and Yang2022).
Even charitable or government aid programmes can take the form of loans and so increased debt – whether that be NGO loans in Bangladesh (Haq and Md Reference Haq and Md2022, p. 11), or ‘disaster loans’ provided by the US government to victims of weather events (Davis and Hansen Reference Davis and Hansen2021, p. 2). Indeed, one US study found that the availability of disaster loans in an area was associated with higher bankruptcy rates two years later, with researchers suggesting that weather-impacted households could not bear the increased debt burden (Davis and Hansen Reference Davis and Hansen2021, p. 8). While providing assistance in the crucial moment of disaster, additional borrowings may raise questions as to the longer-term sustainability of debt burdens, and the future risk of over-indebtedness and insolvency. In his deep study of Hurricane Katrina and its preceding history, Horowitz notes that to victims of 1965’s Hurricane Betsy, a government aid programme taking the form of loans ‘seemed perverse’. Loans often amounted ‘to a second mortgage against a home that no longer existed’, with debt binding residents ‘to a neighbourhood that had proven unsafe’ (Horowitz Reference Horowitz2020, pp. 45–46).
The relationship between debt and climate resilience is complicated by the reality that boosting adaptation financing is crucial to climate goals (World Bank Group 2019, pp. 9–12). Access to credit for groups such as farmers may be necessary to fund investment in adaptation efforts (Abraham and Fonta Reference Abraham and Fonta2018), but this comes with increased debt burdens and financial stress when future climate events result in income shocks (Haq and Md Reference Haq and Md2022). The efficacy of individual-level mitigation strategies such as energy efficiency retrofits depends on the availability and affordability of credit (Eryzhenskiy et al. Reference Eryzhenskiy, Giraudet and Segu2023). Policy-makers readily see the need to promote lending, both to support individuals in surviving climate shocks and to finance transition and adaptation strategies. Evidence collected in this section suggests a need for equal sensitivity to the consequential heightened risk of over-indebtedness when climate impacts strike.
3 Debt relief and climate safety nets
The study of links between personal insolvency and climate impacts remains at a germinal stage, and challenges arise in approaching this topic. Bankruptcy is ‘low’ law, involving the routine processing of large volumes of low-value cases, concerning debtors of limited means. Litigation is rare, and when it occurs it generally centres around an unrepresentative example drawn from the small minority of high-value cases (Spooner Reference Spooner2019, pp. 25–26). Instead of lawyers and judges, in many countries key characters in personal insolvency law are non-legal intermediaries (such as debt counsellors or accountants) and administrative officials (World Bank 2014, pp. 57–61). The search for ‘holy grail’ climate litigation will come up empty in personal insolvency (Bouwer Reference Bouwer2018, pp. 484–85). No mega cases of corporate accountability exist for detailed analysis and debate, unlike the quite established study of climate issues in the neighbouring field of corporate insolvency (Lund Reference Lund2021; Madaus et al. Reference Madaus, Sarra and Mevorach2024; Menezes and Gropper Reference Menezes and Gropper2024; Vaccari and Coordes Reference Vaccari and Coordes2026). Bankruptcy’s nature as a routine administrative process means that even lower-level courts are not significant sites of governance – those seeking bellwether trends among less spectacular ‘modest’ litigation will also find little (Sterett and Mateczun Reference Sterett and Mateczun2022, p. 296). Instead, at this stage, links between bankruptcy and climate impacts can be studied only conceptually, and at an empirical level of aggregate, rather than individual, cases.
The US bankruptcy system is exceptional, in terms of its proportionately high usage and long history of relatively expansive debt relief compared to the laws of other countries (Indarte and Kanz Reference Indarte and Kanz2024, p. 152; Ramsay Reference Ramsay2014). It is also exceptional in that it has been empirically studied to a degree not seen elsewhere (Lawless Reference Lawless2014), with one consequence being that it appears to be the only system in respect of which serious empirical studies have been conducted on the links between weather impacts and bankruptcy. Bearing in mind these caveats, and without universalising from the experiences of one legal system, US bankruptcy studies nonetheless illustrate the potential of personal insolvency law to address problems of financial distress and default associated with climate impacts. A study of major hurricanes across the USA between 1980 and 2004 found that bankruptcy filings increased in affected areas twelve to thirty-six months after such an event (Lawless Reference Lawless2005). The increase in bankruptcy filings was higher in areas with lower property values (Lawless Reference Lawless2005, p. 14). Another US study found that above-average levels of disaster damage led to local bankruptcy filing increases of approximately 5 per cent (Davis and Hansen Reference Davis and Hansen2021). The availability of emergency aid and disaster loan programmes in a locality did not mitigate this effect of increased bankruptcies, with disaster loans actually leading to higher local rates of bankruptcy two years after the occurrence of a weather event. The authors of this study found that longer-term bankruptcy rates fell in some disaster-hit areas. They take this as evidence that disasters might have the effect of pushing into bankruptcy those individuals who were already carrying heavy debt burdens, with the weather event bringing forward what would otherwise have been an eventual future default. In this way, climate events can be seen as unpredictable external shocks for the financially vulnerable, and bankruptcy acts as a form of social insurance against uninsured risk (Davis and Hansen Reference Davis and Hansen2021, p. 9).
Deeper and broader empirical study of individuals’ recourse to bankruptcy after extreme weather events is clearly needed. Nonetheless, for now these studies suggest at least the value in exploring at a conceptual level the role that bankruptcy could play as a safety net of last resort for those who fall through gaps in existing protections against climate impacts. A body of literature understands bankruptcy as a form of insurance against the risks inherent in economies dependent on credit for business activity, consumer spending and the maintenance of living standards (Eisenberg Reference Eisenberg1980, pp. 981–83; Hallinan Reference Hallinan1986, pp. 98–109; Jackson Reference Jackson1986, pp. 229–32; Spooner Reference Spooner2019, pp. 93–97). Bankruptcy can be seen as operating similarly to insurance at a theoretical level, as it transfers risk of default from an insured group (of debtors) to insurers (creditors) through the discharge of debt, on payment by each member of the insured group of a risk-adjusted premium (the interest rate charged on each borrower’s loan) (Feibelman Reference Feibelman2005, p. 130). More practically, studies have long shown that debtors and their advisors see and use bankruptcy ‘as part of the welfare state protection’ (Niemi-Kiesilainen Reference Niemi-Kiesilainen1999, p. 481; Sullivan et al. Reference Sullivan, Warren and Westbrook1989, p. 333), to the point at which US researchers have estimated that bankruptcy’s debt relief provides more monetary value to debtors than all state unemployment insurance schemes combined, making bankruptcy ‘one of the largest social insurance programs’ (Dobbie and Song Reference Dobbie and Song2015, p. 1272). As debt fills gaps in social provision (Atkinson Reference Atkinson2019; Prasad Reference Prasad2012, Chapter 9), bankruptcy intersects with traditional welfare state concerns such as housing (Spooner Reference Spooner2017), health care (Gotberg and Sousa Reference Gotberg and Sousa2019) and unemployment, while also responding to new risks of over-indebtedness in financialised economies, which traditional welfare state protections were never designed to cover in full (Kilborn Reference Kilborn2007). When this view of bankruptcy is combined with the realisation that climate impacts can manifest in over-indebtedness and its accompanying social costs, a vision emerges of the potential of bankruptcy to act as a safety net of last resort for individuals left uninsured or underinsured by market and public protections against climate impacts.
Policy-makers increasingly recognise the importance of true insurance in protecting against climate risks (Paris Agreement 2016, Article 8(4)). Its ex ante coverage, which might cushion individuals directly against financial losses and prevent default in the first place, means that the debt relief offered by personal insolvency will always be a second-best solution (Indarte and Kanz Reference Indarte and Kanz2024, p. 156). For now, however, considerable challenges arise in the market provision of insurance covering climate impacts. One World Bank report suggests that over a ten-year period, only approximately 30 per cent of catastrophe losses had been covered by insurance (World Bank Group 2017, p. 3). In low-income countries, the rate of uninsured losses from weather, climate and natural hazards may lie above 95 per cent (Surminski et al. Reference Surminski, Panda and Lambert2019, p. 1). In Fiji, one of the bigger economies in the at-risk region of the Pacific Islands, only 6 per cent of households hold property insurance (Guo and Narita Reference Guo and Narita2018, p. 4). In higher-income countries, greater expected losses from climate-related perils have led to significant increases in insurance premium costs (Federal Insurance Office 2025), and in some cases ‘insurance retreat’ – the withdrawal of insurance companies from markets that are particularly vulnerable to climate risks (Nevitt and Pappas Reference Nevitt and Pappas2023; Storey et al. Reference Storey, Owen, Zammit and Noy2024). Across both developed and developing economies, even where appropriate commercial insurance is available, lower-income groups face particular difficulties in affording and accessing such products (Lankes et al. Reference Lankes, Soubeyran and Stern2022, p. 5). Similarly, well-recognised difficulties in consumer finance markets, such as information asymmetries and behavioural biases, mean that many individuals may underinsure, or reject insurance altogether and so ‘self-insure’ (Spooner Reference Spooner2019, pp. 96–97). Some self-insurance actions may provide immediate protection from climate-related losses, but can create risks of jeopardising future financial resilience. Post-disaster policies have sometimes allowed and/or incentivised households to make early withdrawals from pension or retirement savings accounts, both in higher-income countries (such as the USA after Hurricane Katrina) and middle-income economies (such as Fiji after Cyclone Winston) (Deryugina et al. Reference Deryugina, Kawano and Levitt2018, pp. 215–81; Guo and Narita Reference Guo and Narita2018). The use of pension savings in this manner can provide important emergency relief, but involves a trade-off in reducing longer-term household wealth. For example, personal insolvency laws generally recognise the policy imperatives associated with retirement provision, and refuse to allow financial security in older age to be traded for short-term debt repayment, by protecting debtor pension funds from seizure for distribution to creditors (World Bank 2014, paras 248–52).
Similar limitations arise in the disaster aid offered by governments, international organisations and NGOs. This can take the form of both post-disaster financial support (through grants or concessional loans), and pre-arranged non-market insurance programmes (Panda and Surminski Reference Panda and Surminski2020, p. 1). The move to non-market mechanisms of disaster support raises the concern of distorting credit markets, given that the use of aid to fund consumer or small business debt repayments may remove potential incentives for lenders to make appropriate assessments of climate risks (Indarte and Kanz Reference Indarte and Kanz2024, p. 147). Aid would in such instances risk realising the fears that climate support measures might end up bailing out corporate actors (Gözlügöl Reference Gözlügöl2025), while reducing prompts for financial institutions to take into account risks of climate-related default in their lending policies and adaptation strategies. A more tangible limitation of aid programmes is the reality that an increasing need for aid in response to climate events can strain fiscal and donor resources (World Bank Group 2017, p. 3). Meanwhile, perennial difficulties arise in ensuring that financial support is delivered effectively to those most in need. One study of small businesses in Fiji, for example, found that SMEs accessing concessional loans tended to be larger and to have more pre-existing access to credit and available collateral, while smaller enterprises were less likely to access concessional loans (Greenland and Toth Reference Greenland and Toth2025, p. 11). A study from India found that a programme of state-subsidised crop insurance could not substitute for debt relief, given that its coverage of losses was narrow in scope, and reimbursement of farmers involved significant delays (Mukherjee et al. Reference Mukherjee, Subramanian and Tantri2018, p. 610). As noted above, one US study showed that for those already living in financial precarity, the availability of grant aid in a locality did not stop a rise in bankruptcy rates following a natural disaster (Davis and Hansen Reference Davis and Hansen2021, pp. 7–8).
Problems of inequities in access to disaster relief benefits are perhaps less a bug of such programmes, and more of a feature. Disaster relief, just like market-provided insurance, aims to compensate people for what has been lost – it offers more to those who initially held more in the ‘normal’ reality before the disruption of disaster (Sterett and Mateczun Reference Sterett and Mateczun2022, p. 300). While most welfare programmes are redistributive in nature, most disaster aid programmes ‘seek to restore inequalities, not mitigate them. The goal is to reestablish the status quo ante and uphold the preexisting order’ (Horowitz Reference Horowitz2020, p. 139). Debt relief, in contrast, by offering greater benefit to those holding negative balance sheets, offers both redistributive promise and a potential challenge to market order and unequal pre-disaster allocations of resources.
4 Disaster, crisis and the extraordinary exception of bankruptcy’s debt discharge
When extreme weather and disasters strike, or even when a broader climate crisis causes such events to occur with increasing frequency, policy-makers must choose a diagnosis. A characterisation of such events as exceptional and transitory aberrations leads to a view that temporary, limited and bespoke policy responses may be appropriate, pending an expected return to a pre-crisis normality. In contrast, an alternative vision sees such events as merely exposing elements of fragile economic and social orders, held together by credit and marketisation (Davies et al. Reference Davies, Dutta, Taylor and Tazzioli2022, p. 3), such that the ‘material preconditions for crisis’ are present and merely awaiting an ‘ideational cue’ to constitute a crisis politically (Hay Reference Hay2011, p. 3). If the latter view prevails, more lasting measures might be perceived as necessary to address long-standing tensions in the underlying social and economic order.
4.1 A climate-focused adaptive informal debt resolution framework
As the climate crisis proves disruptive to the legal system (Fisher et al. Reference Fisher, Scotford and Barritt2017), similar core contradictions emerge in diagnoses of how various legal institutions and fields should respond. At one level, the climate challenge is so great that it seems difficult to argue against the idea that all legal institutions should be greened and directed toward their own adaptation toward climate goals. At another level, many see individual legal institutions – whether, say, insolvency law or financial regulation – as the ‘wrong tools for the job’ (Somaiya et al. Reference Somaiya, Siegert and Kingsmore2025). This is in part due to a sense that the very magnitude of the climate challenge means that many legal institutions individually seem to offer an inadequate response – some reformers are reluctant to reorient the law fundamentally in what might be perceived as a futile attempt (Fisher et al. Reference Fisher, Scotford and Barritt2017, p. 177). In the existing literature on corporate insolvency and climate, there has been a certain resistance to incorporate climate goals into formal legislation, often due to objections that climate interests are external to the concerns of insolvency law, and should be addressed through other tools (Gouzoules Reference Gouzoules2022, p. 2214). To shape some institutions toward climate policy might necessitate the compromise of important legal principles – stability, coherence and certainty (Fisher et al. Reference Fisher, Scotford and Barritt2017, pp. 176–77). In a context of legal debt relief measures, concerns arise regarding uncertain outcomes for the supply of credit (Gross et al. Reference Gross, Kluender, Liu, Notowidigdo and Wang2021; Levitin Reference Levitin2009; Scarberry Reference Scarberry2009), which might, for example, be pronounced in the context of the evolving picture relating to adaptation finance.
Coming from this perspective, a policy preference for temporary and bespoke solutions to specific events might see merit in addressing disaster debt through a soft law mechanism that could be termed a climate-focused adaptive informal debt resolution framework. Founded on the consensual debtor-creditor renegotiation of obligations, such a framework could be overtly focused on climate goals without necessitating a rewriting of generalist personal insolvency law, while of a scope and scale that could be adjusted in response to varying impacts. An adaptive framework could be confined temporarily, representing a targeted flexible response to particular moments – such as extreme weather events – and emerging problems of financial distress (while remaining sensitive to the often lagged effects of disasters) (Davis and Hansen Reference Davis and Hansen2021; Lawless Reference Lawless2005). An adaptive framework could also be spatially limited in a way that is not always possible in formal legislation, to apply to debtors within particular impacted areas, potentially aligning with national systems for government disaster declarations (Lawless Reference Lawless2005, p. 17). Such measures could be experimental in nature, so that their spatially or temporally limited effects could be reviewed in consideration of potential future wide-ranging reforms through general formal legislation (Ranchordás Reference Ranchordás2015). Given that debt relief measures necessarily involve restrictions on creditor rights, temporally and spatially limited informal measures, in response to recognised events, may be perceived as proportionate and more acceptable – both politically and legally – than mandatory legislation of general application. The flexibility of such a voluntary framework offers an adaptive quality (Intergovernmental Panel on Climate Change 2023, p. 107), and the ability to vary its application based on the demands of particular climate incidents would outpace the ability of the formal legislative process to respond to urgent crises.
Indeed, one might look at recent global crises and see a tendency for policy-makers to prefer responses based not on the promotion of expansive access to debt discharge through bankruptcy, but rather the development of alternative bespoke debt forbearance measures. Responses to the widespread mortgage debt default associated with the Global Financial Crisis (GFC) fit this model, as in multiple countries they consisted of ad hoc programmes encouraging lenders to agree to renegotiation or modification of mortgages (Bergthaler et al. Reference Bergthaler, Garrido and Rosha2023). Many national policy responses to the Covid-19 pandemic involved temporary debt forbearance measures, such as mortgage ‘payment holidays’, or rental eviction moratoria (World Bank Group 2021, pp. 9–10). These measures tended to be introduced by regulators or government agencies, and applied for limited periods of time to defined ranges of creditors, such as institutions in a sector supervised by a particular regulator. Market solutions developed along similar lines. While US pandemic legislation mandated forbearance for federal student loans, housing loans and other government-backed loans, approximately 20 per cent of the total forbearance granted was offered voluntarily by private creditors (Cherry et al. Reference Gross, Kluender, Liu, Notowidigdo and Wang2021). In the climate context, in the aftermath of events such as hurricanes, lenders have offered limited measures such as temporary mortgage forbearance facilities and credit reporting amnesties (Valle et al. Reference del Valle, Scharlemann and Shore2024).
4.2 The case for bankruptcy: debt’s legal nature and the limits of forbearance
The prevalence of debt forbearance and voluntary debt restructuring policies should not, however, be taken uncritically as a sign of their efficacy. There would be significant limitations and risks to a climate-focused informal framework. Essential to personal insolvency’s contemporary insurance function is the ‘fresh start’ offered to debtors through the ultimate discharge of (most of) the debtor’s liabilities (World Bank 2021, p. 29; 2022, p. 142). Ensuring access to debt discharge, while providing for appropriate safeguards, is central to addressing default and over-indebtedness associated with climate impacts. Any system of consensual restructuring runs into the obstacle that in one sense, the discharge of debt seems to be inherently legal in nature – involving as it does a binding legal declaration that certain debts are cancelled and no longer have legal effect.Footnote 3 Classic discussions of law’s power of compulsion involve significant discussion of legal enforcement of debt (Hale Reference Hale1935, pp. 156–63), and the mandatory force of law seems central both to the enforcement of debt and its discharge. Furthermore, since parties will bargain in the ‘shadow of the law’ (Mnookin and Kornhauser Reference Mnookin and Kornhauser1979), the success of informal debt restructuring will depend on the existence of modern formal personal insolvency procedures (World Bank Group 2022, p. 23). Formal insolvency legislation establishes the ‘ground rules’ and legal entitlements of both debtors and creditors (Ramsay Reference Ramsay1995, p. 177; World Bank 2014, p. 53), and negotiations between parties in unequal bargaining positions can only succeed if those with less leverage are strengthened through access to formal legal rights. Climate policy calls for ‘adaptive safety nets’, offering expanded social protections on the occurrence of climate impact triggers or contingencies (Intergovernmental Panel on Climate Change 2023, p. 107; World Bank Group 2017, p. 6). It is difficult, however, to see how any temporary crisis response based on voluntary creditor concessions could offer more generous support to the victims of impacts such as extreme weather events and disasters than legally mandated debt cancellation through bankruptcy. Therefore, while the potential for an adaptive informal debt resolution framework to focus more directly on climate goals is attractive, formal personal insolvency legislation remains necessary to endow climate-impacted debtors with a legal entitlement to lasting debt relief.
This point is supported by reviews of GFC schemes of consensual mortgage restructuring, which showed that these programmes encountered considerable difficulty in achieving their policy goals. Creditors frequently showed either an outright refusal to participate, or an insistence on limited loan modifications that did not reduce debt levels sufficiently to produce affordable sustainable solutions (Agarwal et al. Reference Agarwal, Amromin, Ben-David, Chomsisengphet, Piskorski and Seru2017; International Monetary Fund 2012, pp. 110–13; 2013, para 46). Similarly, ad hoc and temporary ‘crisis’ measures may replicate similar problems to those discussed above regarding debt-as-disaster-relief. Immediate and time-limited respite from debt repayment may come at the high cost of storing up future debt problems. Challenges arise in how to unwind forbearance policies without abruptly triggering financial distress (Indarte and Kanz Reference Indarte and Kanz2024, p. 150). Depending on how forbearance policies are structured, and particularly the treatment of accrued interest, short-term forbearance policies can lead to long-term increases in debt burdens (Foohey et al. Reference Foohey, Jiménez and Odinet2020). The model of credit as social assistance assumes a brighter day when the conditions of financially troubled borrowers will somehow improve sufficiently to allow them to repay debt with interest (Prasad Reference Prasad2012, pp. 238–39). Temporary crisis forbearance measures similarly might operate less as redistributive tools, and more as intertemporal and intrapersonal distribution – moving a debtor’s obligations from the present to the future, and assuming a crisis recovery strong enough to allow debtors to repay an increased build-up of debt (Atkinson Reference Atkinson2019, pp. 1098–99).
4.3 The risks of jubilee and bankruptcy as rules-based climate risk sharing
Across developing economies lacking personal insolvency laws, crises and economic downturns have at times led to a different response in the form of ad hoc debt relief programmes – debt forgiveness measures or ‘jubilees’ – developed by governments to respond to particular urgent events with lasting debt cancellation measures (Indarte and Kanz Reference Indarte and Kanz2024, p. 141). One example studied in some depth is India’s Agricultural Debt Waiver and Debt Relief Scheme, which responded to the GFC by offering unconditional debt relief representing approximately 1 per cent of GDP to over forty million rural households (Giné and Kanz Reference Giné and Kanz2018, p. 1753). Research on this programme highlights the benefits of targeted debt relief, but also the risks inherent in ad hoc, unpredictable and unconditional debt waiver measures. One study found a substantial decrease in bank lending to districts that had seen greater usage of the debt waiver programme, while also noting a significant increase in defaults under post-programme loans in such districts (Giné and Kanz Reference Giné and Kanz2018, p. 1753). Notably, the increase in default was concentrated among borrowers who had previously been maintaining loan repayments, rather than those who had fallen into default prior to the programme. The authors conclude that the debt waiver scheme ‘led to significant borrower moral hazard, and had a particularly negative impact on the credit discipline’ of non-defaulting borrowers (Giné and Kanz Reference Giné and Kanz2018, pp. 1753–54). Another study found positive outcomes for borrowers who had shown prior financial distress caused by external factors (here damage to crops due to disease, pests and natural disasters), as this group defaulted at lower rates on post-programme loans compared to debtors who had not benefited from the waiver programme (Mukherjee et al. Reference Mukherjee, Subramanian and Tantri2018, p. 610). Again, however, for borrowers who had not previously suffered such an external shock, and whose debt default was ‘caused either by structural balance sheet issues or by strategic behaviour’, default rates rose compared to similarly situated debtors who did not access the programme (Mukherjee et al. Reference Mukherjee, Subramanian and Tantri2018, p. 611).
The concerns raised by these findings support the position that in a complex contemporary system of multilayer financial intermediation, it seems impossible to ‘replicate the Jubilees of prior millennia’ (Hudson and Goodhart Reference Hudson and Goodhart2018, p. 8). In contrast, the use of personal insolvency procedures to resolve climate-related financial distress can be seen as a response to the call in climate policy for means of ‘spreading and sharing’ the risks of climate impacts (Intergovernmental Panel on Climate Change 2023, p. 107), in a ‘pre-agreed’, planned and transparent manner (World Bank Group 2017, p. 6). Personal insolvency is a rules-based system of debt relief and resolution, offering certainty and predictability regarding recovery rates and the allocation of losses in the event of default. It is also a system with long experience of balancing the aim of economic rehabilitation with the need to guard against concerns of moral hazard. Crisis moments also can cause challenging political circumstances, in which it can be difficult for carefully designed policies to be developed and implemented (Mian et al. Reference Mian, Sufi and Trebbi2014). In this context, there are advantages to acting before crisis strikes, and to putting in place ‘automatic stabilisers’ – such as personal insolvency laws – that will apply automatically and generally in the event of an economic downturn (Gaffney et al. Reference Gaffney, McCann and Stroebel2022; International Monetary Fund 2012, p. 26; Mian and Sufi Reference Mian and Sufi2017). Post-crisis ad hoc solutions run the risk of distorting credit markets, producing uncertainty for creditors and debtors and creating expectations regarding (unpredictable) policy responses to future crisis events (Indarte and Kanz Reference Indarte and Kanz2024, p. 141). Given predictions that extreme weather events will recur frequently across much of the world (Intergovernmental Panel on Climate Change 2023, p. 46), markets would benefit from as much certainty as possible regarding the resolution of default and financial distress, particularly as policy-makers hope for the growth of adaptation and transition financing (World Bank Group 2019, pp. 9–12).
A key aspect of personal insolvency’s insurance function is to prevent risks of over-indebtedness from falling solely on those least able to prevent and bear such risks – individual debtors. Aside from obvious equity concerns, the inability of individuals and small businesses to bear such risks leads to considerable social costs (externalities), from sources such as lost economic activity and increased public social provision (Spooner Reference Spooner2019, pp. 86–93). Personal insolvency’s provision of debt relief allows risks to be pooled across credit markets, with the costs of default spread and mitigated through risk-based pricing models (and associated creditworthiness assessments) and other sophisticated hedging tools available to financial institutions (Spooner Reference Spooner2019, pp. 94–96). Individual debtors may have limited means to predict and to guard against climate impacts, while banks and other financial institutions may be better placed to consider such risks across their aggregate lending activities. Loss shifting through debt discharge under clear conditions should in this way facilitate the efficient pooling and pricing of climate-related financial risk, and create incentives for actions that can contribute to the internalisation of externalities (World Bank Group 2019, p. 8).
Further, personal insolvency offers a means of guarding against the risk of moral hazard, a concern that features prominently even in policy documents that have promoted relatively bold debt relief measures (International Monetary Fund 2012, p. 14; Liu and Rosenberg Reference Liu and Rosenberg2013, pp. 17–18; World Bank 2022, pp. 126–27). This refers to the idea that protection against the consequences of over-indebtedness might reduce incentives for individuals to take care when borrowing, or create incentives for individuals to ‘abuse’ insolvency procedures by filing for insolvency relief when not in true need (Spooner Reference Spooner2019, Chapter 7). Personal insolvency laws have long been aware of the problem of moral hazard, and contain a carefully calibrated system of safeguards such that the benefits of debt relief come at significant costs. In this sense, personal insolvency holds advantages over ad hoc forbearance measures, due to the in-built safeguards inherent to insolvency law (Levitin Reference Levitin2009, pp. 641–47). For example, national laws tend to include a ‘waiting period’ of a number of years before a debtor becomes eligible for discharge. During this period, the debtor will be subject to supervision by a trustee or administrator, under duties of disclosure and full financial transparency, and obliged to follow certain standards of conduct. The law most often requires debtors to make repayments from income to creditors for a period of years, which frequently serves more to ensure that the ‘price’ of debt relief is sufficiently high, rather than generating significant returns for creditors (World Bank 2014, pp. 263–65). All legal systems impose punishments and sanctions on debtors found to have engaged in fraud or dishonesty, and exclude from discharge fraudulently incurred debts. In short, personal insolvency law has over time developed and tested appropriate safeguards to ensure the costs of debt relief are proportionate to its benefits, and evidence is limited of the risks of moral hazard manifesting themselves in existing bankruptcy systems (Indarte Reference Indarte2023).
While the debt default and over-indebtedness associated with climate shocks have been given policy attention in the extent to which they might trigger financial stability concerns (Campiglio et al. Reference Campiglio, Deyris, Romelli and Scalisi2025, p. 2; Financial Stability Board 2025), there is a need to focus on addressing climate-related individual financial distress in its own right. There are strong reasons favouring the resolution of these debt problems via transparent and predictable personal insolvency regimes, rather than incomplete forbearance schemes or uncertain ad hoc debt relief measures. This means that reviews of preparedness for financial climate shocks should include consideration of whether national personal insolvency laws are operating effectively. In the many emerging economies that do not yet have personal insolvency laws offering debt discharge (Indarte and Kanz Reference Indarte and Kanz2024, p. 140), climate impacts raise a further reason for taking action to introduce such legislation. In countries where bankruptcy laws offering debt discharge currently exist, policy-makers may need to recognise the limitations of less drastic solutions and face the unpalatable reality that, as stark as it sounds, the promotion of expanded access to bankruptcy may be a necessary response to climate shocks.
5 Limitations and potential of personal insolvency’s pursuit of climate policy
5.1 Bankruptcy’s limits
Such promotion of personal insolvency is challenging. The perennial problem of funding bankruptcy proceedings, where individual debtors necessarily lack resources to cover legal and administrative costs, results in a lack of access to low-cost bankruptcy options in many jurisdictions (Ramsay Reference Ramsay2020). Furthermore, bankruptcy continues to carry significant stigma (Ali et al. Reference Ali, O’Brien and Ramsay2015; Sousa Reference Sousa2018). Indeed, the persistence of this stigma might raise qualms about a climate debt relief policy that simply directs innocent victims of climate impacts into a generalised bankruptcy law (where stigma portrays general debtors as somehow less ‘innocent’). Here again, however, the tension arises between the exceptionality of what our society declares to represent disaster and crisis, and the everyday struggle of financial precarity and over-indebtedness experienced by many among our populations (Horowitz Reference Horowitz2020, p. 139; Sterett and Mateczun Reference Sterett and Mateczun2022, p. 301). Meanwhile, slower onset climate harms, disproportionately experienced by under-resourced groups, mean that the lines between disaster and ongoing climate-related financial distress may blur (Hammond Reference Hammond2025). The patent deservingness of climate victims might even help to reduce stigma associated with bankruptcy, if it could contribute to wider understanding that most over-indebted individuals having recourse to insolvency protection are similarly subject to external ‘life accidents’ or ‘social forces majeures’ (Cesar Leandro and Botelho Reference Cesar Leandro and Botelho2022, pp. 542–43; Stamp Reference Stamp2023, pp. 4–5). As historian Andy Horowitz comments, while there ‘may be good reasons to distinguish between a person who lost her house in a flood and a person who lost his house because his mortgage went under water’, automatically placing these events in separate categories ‘reinforces… political, economic, cultural, environmental, and moral logics that one ought to interrogate’ (Horowitz Reference Horowitz2020, p. 15).
There are genuine limits of bankruptcy protection, however, which pose challenges in the context of climate impacts. One lies in the law’s status as a safety net of last resort. Its quid pro quo of exchanging debtor assets for debt relief means that it offers most benefit to those without valuable assets and with little left to lose. In advanced bankruptcy systems, most debtors hold few, if any, assets of value (Ramsay Reference Ramsay2020). Where debtors hold property, laws tend to offer little protection in respect of any assets subject to creditors’ security interests. Traditional liquidation processes leave secured creditors’ rights untouched, allowing such parties to seize assets. Even debt restructuring plans in many personal insolvency systems apply only to unsecured creditors (World Bank 2018, p. 19). In many regimes, secured creditors will only be included where they have given affirmative approval to any plan that provides for restructuring of secured claims and the debtor’s retention of assets subject to security – in other words, any debt relief here would be granted by creditor concession, rather than through legal compulsion (Bergthaler et al. Reference Bergthaler, Garrido and Rosha2023, pp. 20–28; World Bank 2014, pp. 107–108). Even in the US bankruptcy code, under which repayment plans are imposed by courts rather than creditor majority voting, claims secured on debtor homes cannot, without consent of the relevant creditor, be reduced to the market value of the asset subject to security. The foreclosure catastrophe following the GFC was insufficient to compromise this principle, as US policy-makers declined to amend the law to allow restructuring of home mortgage debt (Taub Reference Taub2014, Chapter 15).
This treatment of secured creditors’ claims reflects the importance of security as an effective tool for supporting credit markets and facilitating access to credit. Innovative uses of security rights may indeed hold importance in the development of adaptation and transition finance (Kilborn Reference Kilborn2025). Nonetheless, if secured creditors’ rights are so protected as to exclude them from participating in debt renegotiation, the reality is that many debtors may be left with nothing to restructure. Extreme weather causes destruction to physical assets such as homes and real estate. Even where insurance is in place, outstanding debts might exceed the value of such cover (Lawless Reference Lawless2005, pp. 19–20). Where physical harms have not occurred, fears of future impacts can destroy asset values while leaving debts intact – insurance, lending standards and household indebtedness become entangled in such situations. In February 2025, Federal Reserve Chairman Jerome Powell predicted that in ten to fifteen years, there would be regions of the USA where it would be impossible to obtain a home mortgage loan, due to the retreat of insurers and lenders from areas most exposed to fire and flooding risks (Powell Reference Powell2025).
In this context, policy-makers must consider the options of either breaking a bankruptcy taboo by allowing the mandatory restructuring of secured claims under formal personal insolvency law, or encouraging, perhaps through incentives and the leadership of regulators such as central banks, the voluntary restructuring of such claims in an informal debt resolution framework. Irish law offered a rare example of the former option. Post-GFC personal insolvency legislation originally provided for one personal insolvency procedure to include mortgage debt within debt restructuring plans, subject to approval by 65 per cent of creditors by value. After disappointing take-up, and significant reluctance from lenders to agree to mortgage debt reductions, government subsequently changed the procedure to allow courts, within clearly defined limits, to impose proposed mortgage restructurings even where most creditors had not voted in favour (Spooner Reference Spooner2018; Reference Spooner, Gardner, Gray and Wherry2026). This law included a ‘claw-back’ provision, under which secured creditors subject to mortgage principal reductions could share in any increase from a subsequent property sale at a higher value (Personal Insolvency Act 2012, s. 102(6)(g)). This approach mirrors proposals for equity and loss sharing in mortgage contracts as a means of spreading risks of economic volatility (Mian and Sufi Reference Mian and Sufi2017). Flexibility and innovation may be required in the treatment of assets and secured claims to take a realistic approach in the context of climate impacts.
5.2 A greener personal insolvency law?
Beyond its function of offering debt relief to victims of climate impacts, personal insolvency also holds potential for those policy-makers who wish to embrace climate goals more directly by reorienting or even re-imagining this area of law. Bankruptcy has traditionally balanced various policy interests alongside its primary aims of advancing debtor rehabilitation while guarding against moral hazard and offering fair treatment of creditors. Given its essential trade of offering debt relief in exchange for the distribution of debtor income and assets to creditors, such policy interests are generally furthered through changes to the terms of this trade, by adjusting the scope of debt discharged and the range of resources distributed. For example, the law has always excluded from discharge certain exceptional categories of debts. As mentioned above, obvious exempted categories include debts incurred fraudulently, but most legal systems also exclude ‘non-market’ obligations seen as crucial from a social policy perspective, such as family support liabilities. The treatment of debts owed to government is controversial, with some countries including them within the scope of debt discharge, while others see national policies regarding the payment and collection of taxes as outweighing the core goals of personal insolvency. Fines are also excluded from discharge in some regimes, with this exclusion combining the special status of publicly owed obligations with the interest of discouraging criminal conduct. Perhaps even more controversially, national education funding policies have made student loans incapable of discharge in some systems (World Bank 2014, paras 368–74). Looking to distributions of debtor resources, the priority order of creditors, including the placement of groups such as secured creditors and employees, represents a balance of policy values (Davis et al. Reference Davis, Pargendler and Lessa2026). As discussed above, exemptions of property from seizure by creditors can advance national policy preferences in areas such as housing and pension provision. Meanwhile, bankruptcy has long incorporated concerns regarding the integrity of credit markets, establishing market ‘ground rules’ and sitting alongside financial regulation norms as part of credit market infrastructure (Ramsay Reference Ramsay1995, p. 177; World Bank 2014, p. 53). This means that in various jurisdictions, certain creditor claims can be disallowed by the bankruptcy system where they contravene regulatory norms of fairness in credit markets.Footnote 4
An exploration of the potential of personal insolvency to reorient itself more toward climate goals might then focus on how these features of the law could be harnessed. In particular, consideration could be given to recalibrating the essential bargain of debt discharge for debtor assets, so as to produce incentives aligning with climate policy.Footnote 5 Looking to the disallowance of creditor claims might lead us to ask, assuming the development of more defined regulatory standards of green lending, whether incentives for environmentally sustainable lending could be created through measures allowing for creditor claims to be set aside where they breach any relevant climate-focused financial regulations (Gouzoules Reference Gouzoules2022, p. 2213). Turning to debtor assets, it is possible that disaster victims might on occasion hold claims relating to breaches of environmental obligations, the pursuit of which may be rendered unviable due to their lack of financial resources. Debtor participation in insolvency proceedings would offer an opportunity for such claims to be assessed and perhaps to be pooled by insolvency officials for collective enforcement at scale, or assigned to a relevant environmental regulator.Footnote 6 Similarly, debt restructuring plans, and the advice provided by trustees and other insolvency professionals in their development, might aim to assist debtors in building resilience through the incorporation of adaptation measures into future consumption and production activities. The law might consider how particular protections for adapted assets could be facilitated. In this way, the debtor’s financial rehabilitation could fit with post-disaster aims of ‘Building Back Better’ (Mannakkara et al. Reference Mannakkara, Wilkinson and Potangaroa2018, p. 1; see Priority 4 of the Sendai Framework).
Of course, again there are limits to the extent to which debt discharge in bankruptcy can provide true financial rehabilitation and a ‘fresh start’. Beyond debt relief, debtors’ ability to build back better may necessitate access to resources such as adaptation finance. While important international reviews have called for non-discrimination against bankrupt debtors in credit markets and credit reporting systems (World Bank 2014, pp. 118–19, 142–43), this position remains far from being achieved in many countries (Thorne Reference Thorne2008). Even if a return to credit markets could be delivered for debtors, the use of credit for adaptation necessarily increases leverage and risk for borrowing households – climate challenges raise anew the recurring question as to the optimal level of credit and debt in an economy (Ramsay Reference Ramsay2017, p. 198; Turner Reference Turner2015).
6 Conclusion: climate and law’s contradictory necessities
This article is an effort to start (or revive) conversations as to how household debt and personal insolvency law should fit on the climate policy agenda. In a context in which administrative law and regulatory measures are more widely recognised forms of legal response to climate impacts (Bouwer Reference Bouwer2018, p. 499; Pozzo Reference Pozzo, Santos Silva, Nicolussi, Wendehorst, Salvador Coderch, Clément and Zoll2024), it has aimed to highlight the potentially overlooked importance of the private law ‘ground rules’ that shape market relations between private actors. In particular, it seeks to highlight the importance of bankruptcy in allocating financial losses associated with climate risks.
In an essay well known among bankruptcy scholars, Simone Weil wrote that:
‘The payment of debts is necessary for social order. The non-payment of debts is quite equally necessary for social order. For centuries humanity has oscillated, serenely unaware, between these two contradictory necessities’ (Weil Reference Weil2015, p. 149).
Personal insolvency law illustrates the law’s incorporation of these contradictory necessities. A tension inevitably arises between the legal system’s usual sanctification of obligation and its acknowledgement of the messy reality that circumstances frequently render impossible and undesirable the honouring of such obligations. If climate change is a cause of fundamental disruption to the legal system (Fisher et al. Reference Fisher, Scotford and Barritt2017), a focus on personal insolvency, and its institution of debt discharge, might reveal the underappreciated internal mechanisms within the legal system for acknowledging and accommodating disruption. Climate change challenges the stability and coherence of legal orders, particularly in areas such as contract and property, ‘where there is an expectation that law will ensure stable relations’ (Fisher et al. Reference Fisher, Scotford and Barritt2017, p. 181). In contrast with legal institutions built on steady preordained obligations, bankruptcy has always been the law of the unforeseen. It is a tool of rescue to intervene at the point at which the non-payment of debts appears more socially beneficial than continued insistence on payment of prior debts undertaken under significantly different circumstances (Alderman et al. Reference Alderman, De Franceschi, Giancaspro, Howells, Lei, Lete, Micklitz, Miscenic, Naude, Pichonnaz, Poillot, Ramsay, Terryn, Twigg-Flesner and Wilhelmsson2020; Hillman Reference Hillman1990). Bankruptcy contrasts with other areas of private law – contracts, property and even torts – which are characterised as fundamentally facilitative in nature (Howarth Reference Howarth, Lees and Viñuales2019, p. 1096), and so supportive of the market dynamics and wider economic order that have led to contemporary climate risks (Fornasari Reference Fornasari2024, pp. 832–36; Purdy et al. Reference Purdy, Grewal, Kapczynski and Rahman2020, p. 1788). Given the scale and complexity of the challenges posed to the legal system by climate impacts (Hilson Reference Hilson2013), initial private law responses – for example, measures such as the introduction of a ‘right to repair’ in contracts for sales of consumer goods – seem insufficient (Rossi and Ruhl Reference Rossi and Ruhl2023). Bankruptcy’s institution of debt discharge in contrast embodies ‘an extraordinary exception to the usual obligation orientation of the law’ (Howard Reference Howard1987, pp. 1047–48).
Legal responses to climate challenges can hold value in both their practical and symbolic dimensions (Fisher et al. Reference Fisher, Scotford and Barritt2017, pp. 200–201). In posing an inherent challenge to contractual and property rights and the underpinning logic of pacta sunt servanda, personal insolvency holds corrective potential – both material and symbolic – as a legal representation of opposition to existing market allocations of resources and risk. Given important questions raised in legal scholarship regarding links between environmental risks and economic hardship (Purdy Reference Purdy2018), our considerations of climate impacts should incorporate understanding of how the law allocates hazard through financial claims, and how debt relief may be an important component of the distribution of climate risk. If disasters ‘provide… a clean break from the past’ (Fritz Reference Fritz, Merton and Nisbet1960, p. 692), there is intuitive appeal in giving greater recognition to the role of a legal institution that aims to offer a fresh start.
Acknowledgements
The author thanks, for their valuable comments on earlier versions of this research, Akvile Gropper, Jason Kilborn, Antonia Preciosa Menezes, Iain Ramsay, Saul Schwartz, and Eugenio Vaccari.
Competing interests
The author has worked on personal insolvency issues as part of the World Bank Group Finance, Competitiveness and Innovation Global Practice. This paper is written in a personal capacity, and all errors, omissions, and opinions are the author’s own.
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