Is Debt Forgiveness the Way? Understanding the Status Quo Bias in Credit and Collections

Debt Forgiveness in the Jubilee Law and Brazilian Legislation

I have been reading Debt: The First 5,000 Years by David Graeber, and it has been a transformative experience. The book revisits the history of debt and its relationship with social, economic, and even moral aspects of humanity. Graeber shows us that debt is not merely a financial issue but also a cultural and political construct that has shaped civilizations. This reading has led me to reflect on how we deal with debt today and how societies in the past addressed this issue. A fascinating example is the Jubilee Law, present in the biblical tradition, which provided for debt forgiveness and the redistribution of resources. At the same time, it is interesting to observe parallels with modern practices, such as removing debtors' names from Brazilian credit blacklists after five years.

The Jubilee and the Sabbatical Year in Biblical Tradition

In the Bible, we find two interrelated concepts that directly address debt: the Sabbatical Year, which occurred every seven years, and the Jubilee, celebrated in the 50th year after seven cycles of seven years.

1. The Sabbatical Year:

- The Sabbatical Year is described in Deuteronomy 15:1-2, one of the books of the Torah and the Old Testament. Deuteronomy is a collection of speeches attributed to Moses, presenting laws, principles, and ethical guidelines for the people of Israel. In chapter 15, it states that at the end of every seven-year cycle, all debts should be canceled:

"At the end of every seven years, you must cancel debts. This is how it is to be done: Every creditor shall cancel any loan they have made to a fellow Israelite."

- This practice had a clear purpose: to prevent individuals and families from being crushed by perpetual debt, offering a cycle of economic renewal.

- It also reflected an ethical principle: life and people's well-being should take precedence over financial obligations.

2. The Jubilee:

- Mentioned in Leviticus 25, the Jubilee occurred in the 50th year and went even further:

- Liberation of slaves.

- Return of property to its original owners.

- Resting of the land, halting agricultural activities.

- The Jubilee was a moment of social rebalancing, ensuring that wealth did not become indefinitely concentrated in the hands of a few.

These practices were not merely economic measures; they were ways of rethinking social organization and promoting justice in a system that recognized the inherent inequalities of financial relations.

Credit Blacklists in Brazil

In Brazil, legislation establishes that a debtor's name can remain on credit blacklists, such as SPC and Serasa, for up to five years, according to the Consumer Protection Code (Art. 43, §1). After this period:

- The name must be removed, even if the debt has not been paid.

- The debt, however, still exists and can be collected but no longer restricts credit access.

Although not as comprehensive as debt forgiveness during the Sabbatical Year, this mechanism reflects the same ethical principle: people should not be punished indefinitely for their financial obligations. It provides a chance for recovery, allowing the debtor to gradually regain their position in the economy.

Parallels and Differences

Parallels:

1. Economic Renewal:

Both the Sabbatical Year and the five-year rule in Brazil share the idea that people need opportunities to start over.

2. Social Justice:

Both recognize that perpetual debts can lead to unsustainable inequalities, undermining social balance.

Differences:

1. Cancellation vs. Suspension:

- In the Sabbatical Year, debts were canceled after seven years.

- In Brazil, the debt is not canceled; it merely ceases to be a formal impediment after five years.

2. Time Interval:

- The Sabbatical Year occurred every seven years, while the period in Brazil is fixed at five years.

Conclusion

Reading Debt has made me reflect on how our relationship with debt, although deeply rooted in historical and cultural contexts, is heavily influenced by the status quo bias. This bias leads us to preserve systems that treat debts as unquestionable obligations, perpetuating an economic model that often disregards the individual complexities of debtors and creditors.

Debt forgiveness, as in the Sabbatical Year, faces resistance because it challenges this status quo, being perceived as a threat to creditors' legal security. However, insisting on maintaining irrecoverable debts or excluding creative solutions, such as more flexible renegotiations, installment programs, and greater accessibility to payment options, does not contribute to market evolution.

Rethinking our relationship with debt requires questioning the status quo and seeking alternatives that balance justice and efficiency. Models that enable payment rather than simply forgiving or punishing debts can transform the system, fostering a fairer, more dynamic, and sustainable market for all involved.

References

BRAZIL. Law No. 8,078, of September 11, 1990. Consumer Protection Code. Available at: <https://www.planalto.gov.br/ccivil_03/leis/l8078.htm>. Accessed on: Dec. 29, 2024.

GRAEBER, David. Debt: The First 5,000 Years. S?o Paulo: Três Estrelas, 2013.

BIBLE. Deuteronomy 15:1-2. The Holy Bible. Translated by Jo?o Ferreira de Almeida. Available at: <https://www.bibliaonline.com.br>. Accessed on: Dec. 29, 2024.