The Discharge of Debt Under the Personal Insolvency System of England and Wales – Lessons to Be Learned From an Economic Perspective

This chapter examines the discharge of debt under the personal insolvency system of England and Wales through the lens of economic theory. First, it outlines the core economic framework used to evaluate personal insolvency law, focusing on risk allocation, incentive structures, and the management of externalities, and situates the “fresh start” policy within this framework. Second, it analyses the development of the legal and policy architecture of personal insolvency in England and Wales, tracing the historical liberalisation of bankruptcy discharge alongside the emergence of the “can pay, should pay” approach and the differentiated treatment of debtors through bankruptcy, Debt Relief Orders, and Individual Voluntary Arrangements. Third, drawing on empirical evidence and practical experience, the chapter assesses the real-world effects of this policy shift, demonstrating the marginalisation of statutory debt relief, the expansion of long-term repayment plans, and their limited effectiveness in generating creditor returns or deterring moral hazard. The chapter concludes that concerns about moral hazard have been overstated and that long-term repayment obligations undermine the economic objectives of personal insolvency law. It argues for a renewed emphasis on discharge mechanisms that better address debt overhang, welfare effects, and economic efficiency.