Electronic copy available at: http://ssrn.com/abstract=913096
Out With the New, In With the Old: As Sweden Aggressively Streamlines Its Consumer
Bankruptcy System, Have U.S. Reformers Fallen Off the Learning Curve?
Jason J. Kilborn*
Reform is in the air! The United States is in good company in revamping its approach to
consumer bankruptcy. A look at neighboring reforms in similarly situated nations offers fresh
and enlightening perspectives on the path ahead in this country. Sweden was among the first
continental European nations to adopt a regime of debt relief for consumers.1 After over a
decade of trial and error under its original law, Sweden has just adopted a streamlined new law to
make its system more straightforward and efficient. Of particular interest to U.S. readers,
Sweden’s “original law” functioned very much like the revised consumer bankruptcy system just
adopted in the United States. An analysis of 12 years of Swedish experience thus offers a
glimpse into the future of the new U.S. regime.
This article is premised on the hope that the United States is not doomed to repeat the
mistakes of the past. A comparative analysis of the doctrine and practice of consumer debt relief
in Sweden reveals several shortcomings and unfinished business in the U.S. reform effort. In
particular, the failure and abandonment of mandatory credit counseling and informal negotiation
with creditors in Sweden seems a likely harbinger of things inevitably to come in the U.S. Based
on a long and dissatisfying evaluation period, Sweden has ushered out one of the key new
aspects of the U.S. system. Have we adopted a latent defect? Additionally, though the United
States is unlikely to follow Sweden’s lead for practical and historical reasons, the new Swedish
law prompts us to reexamine the notion of a more administrative approach to at least some
aspects of the consumer debt relief process. Sweden has just ushered in an administrative
structure that corresponds almost exactly with proposals that were rejected in the United States in
the 1970s. Perhaps it is time to reconsider our rejection of these proposals, at least in part.
Part I introduces the consumer debt relief system in Sweden, examining in detail its
operation, perceived shortcomings, and recent reform. This Part continues a larger project to
chart—in English—the experiences of our European neighbors in the first years of their new and
often vastly divergent formal approaches to consumer debt relief.2 Not surprisingly, certain
elements of the Swedish process are unique to the Nordic approach to consumer credit and
responsibility. The general contours of the system and many of its details, however, bear a
striking resemblance to the recently remodeled U.S. system. Analyzing the legal and practical
similarities and differences between the two systems, Part II advances both observations and
challenges for the future of the U.S. law. Swedish experience provides compelling answers to
* Comments welcome at firstname.lastname@example.org or email@example.com.
1 See Johanna Niemi-Kiesiläinen, Consumer Bankruptcy in Comparison: Do We Cure a Market Failure or a Social
Problem?, 37 OSGOODE HALL L. J. 473, 482-97 (1999).
2 See Jason J. Kilborn, The Hidden Life of Consumer Bankruptcy Reform: Danger Signs for the New U.S. Law From
Unexpected Parallels in the Netherlands, 39 VAND. J. TRANSNAT’L L. 77 (2006) [hereinafter, Kilborn, Dutch Law];
Jason J. Kilborn, Continuity, Change, and Innovation in Emerging Consumer Bankruptcy Systems: Belgium and
Luxembourg, 14 AM. BANKR. INST. L. REV. 69 (2006) [hereinafter, Kilborn, Belgium and Luxembourg]; Jason J.
Kilborn, La Responsabilisation de l’Economie: What the United States Can Learn From the New French Law on
Consumer Overindebtedness, 26 MICH. J. INT’L L. 619 (2005) [hereinafter, Kilborn, French Law]; Jason J. Kilborn,
The Innovative German Approach to Consumer Debt Relief: Revolutionary Changes in German Law, and
Surprising Lessons for the United States, 24 NW. J. INT’L. L. & BUS. 257 (2004) [hereinafter, Kilborn, German
Electronic copy available at: http://ssrn.com/abstract=913096
many of the questions we in the United States have faced and will face in the future with respect
to consumer debt relief, and it prompts us to reconsider debates from our recent and more distant
past. For example, a comparison of budgeting practices, “excess” income, and the welfare
systems in Sweden and the United States offers a new and intriguing view of the (un)likelihood
of significant payments to creditors under the expensive and laborious new U.S. system of
“means testing” and forced payment plans.
To be sure, many aspects of the social, political, and legal landscape in the United States
contrast sharply with the situation in Sweden. Nonetheless, U.S. policymakers should be aware
of and carefully evaluate reforms in parallel systems, like that in Sweden, if we in the United
States wish to maintain our position as a bellwether of efficient and effective economic law
reform. This Article aims to use Swedish experience to shed light3 on some of the hidden—and
questionable—premises of our new law to encourage U.S. policymakers to climb back to the top
of the increasingly international learning curve.
I. Swedish Consumer Bankruptcy Law, Practice, and Reform, 1994-2006
This Part surveys how and why a consumer bankruptcy system was adopted in Sweden in
1994, how the first system operated over the following decade, both “in books” and “in action,”
and why and how it was revised and reenacted in May 2006. In some respects, the Swedish
system is rather more onerous and closed to access than other European regimes, as has been
reported in the rare English commentary on the Swedish law. 4 In other respects, however,
application of the law seems to have been somewhat softer than a sterile reading of the statute
would suggest. The Swedish system bears a striking resemblance to the newly revised system in
the United States, so a review of over a decade of Swedish practice offers precious insight into
our own future.
A. Join the Club: The Path to the First Swedish Consumer “Bankruptcy” Law
Like many other continental European economies, Sweden’s was rocked by the one-two
punch of interest rate deregulation in the mid-1980s followed by severe economic downturn
(including a real estate market crash and a spike in unemployment) in the early 1990s.5 After
credit deregulation in 1985, total household debt grew dramatically from 1986 into the early
1990s, while personal savings rates fell.6 During this period, a sharp rise in real property values
(collateralizing new home loans) led many consumers to take on what would turn out to be
excessive debt, particularly after housing prices fell precipitously.7 The average percentage of
3 Sunlight is, after all, the best disinfectant. See Buckley v. Valeo, 424 U.S. 1, 67 & n.80 (1976) (quoting L.
BRANDEIS, OTHER PEOPLE'S MONEY 62 (National Home Library Foundation ed. 1933)).
4 See, e.g., Niemi-Kiesiläinen, supra note 1, at 495-97.
5 See, e.g., ETT STEG MOT ETT ENKLARE OCH SNABBARE SKULDSANERINGSFÖRFARANDE, SOU 2004:81, at 55, online
at <http://www.regeringen.se/sb/d/108/a/28107>; KONSUMENTVERKET, ÖVERSKULDSÄTTNING—OMFATTNING,
ORSAKER OCH FÖRSLAG TILL ÅTGÄRDER, PM 2003:04, at 4, 6, 30, online at http://www.konsumentverket.se/
Documents/PM/overskuldsattning_PM2003_04.pdf; PROP. 1993/94:123, SKULDSANERINGSLAG, § 2.1, online at
6 See, e.g., PROP. 1993/94:123, supra note 5, § 2.1 (reporting a doubling of current debt from 1985-1988, while
personal savings fell from 4% to 2.5% of disposable income); SOU 2004:81, supra note 5, at 55 (same).
7 See, e.g., PROP. 1993/94:123, supra note 5, § 2.1; SOU 2004:81, supra note 5, at 55. Home mortgage-related debt
has been identified as a particular source of financial distress in Sweden, as many individuals purchased homes in
the late 1980s as prices rose, only to see their home values fall precipitously in the early 1990s. See, e.g., PM
household disposable income dedicated to current debt servicing rose to 130% in 1988 before
falling back to about 100% in the early 1990s.8 Though the rapid pace of increases in household
debt had slowed by the early 1990s, the large debt burdens of the late 1980s would wreck havoc
on consumer finances for years to come, especially as unemployment became a more serious
Rising consumer debt occasioned increasing financial distress among consumers, which
soon caught the attention of policymakers. As early as 1986, the Swedish parliament
(Riksdagen) had begun consideration of a law aimed specifically at consumer debt adjustment.10
Like in other continental European states, the existing Bankruptcy Law (Konkurslagen) benefited
neither creditors nor debtors, as most consumers had no non-exempt assets that could form a
bankruptcy estate for creditors, and the law offered no discharge of unfulfilled obligations.11 On
the heels of several government reports of a growing consumer economic crisis,12 the legislature
commissioned an official investigation to explore alternatives to bankruptcy for consumers.13 In
October 1990, the investigative commission submitted its report14 proposing the institution of a
new legal scheme of debt adjustment for individuals, similar to the one adopted in Denmark in
The driving idea behind the new system was largely based on detached economics, not
necessarily individual social welfare or humanitarian concern for consumers.16 The proponents
of the law reasoned that offering such relief would benefit society by avoiding the loss of
economic productivity and tax receipts from debtors robbed of incentives to work in the
mainstream labor market, as well as the burdens of such debtors on the social service and
criminal enforcement systems.17 At the same time, the system would benefit creditors by
offering debtors an incentive to produce value for them and by placing a single neutral
administrator in charge of the system who could credibly assure creditors of the folly of their
2003:04, supra note 5, at 6, 30. The number of execution sales of homes in Sweden rose from 548 in 1990 to nearly
4000 in 1994, falling back to about 500 by 2002. See id. at 47 & tbl. 1. One fears that many individuals in
California and other inflated real estate markets in the U.S. are headed for the same sort of trouble in the near future.
See, e.g., Linda Stern, Finance: The pain of mortgage over-extension, MSN MONEY, June 14, 2006, online at
8 See PROP. 1993/94:123, supra note 5, § 2.1.
9 See id.
10 See PROP. 1993/94:123, supra note 5, § 2.2; SOU 2004:81, supra note 5, at 55.
11 See Gertrud Lennander, Debt Adjustment for Private Individuals, 35 SCANDINAVIAN STUDIES IN LAW 127, 132
(1991); PROP. 1993/94:123, supra note 5, § 4.1.
12 See, e.g., PROP. 1993/94:123, supra note 5, § 2.2; Lennander, supra note 11, at 131.
13 See PROP. 1993/94:123, supra note 5, § 2.2; Lennander, supra note 11, at 129-30 & nn. 2-3.
14 SKULDSANERINGSLAG, SOU 1990:74.
15 See Lennander, supra note 11, at 129-30, 137. Later, policymakers continued to take a particular interest in the
situation in Denmark, which had just adopted the first consumer “bankruptcy” law in Europe, as well as Norway,
which had adopted a system just as the Swedish investigation was concluding. See PROP. 1993/94:123, supra note
5, § 2.2. In addition, the government report surveyed existing and proposed systems in Finland, the United States,
England, France, Germany, and Austria. See id. §§ 2.3, 3-3.4; Lennander, supra note 11, at 132 n. 15.
16 See, e.g., PROP. 1993/94:123, supra note 5, § 4.1; Lennander, supra note 11, at 138, 145 (“The Report stresses
that debt adjustment must be based on an economic view.”).
17 See, PROP. 1993/94:123, supra note 5, §§ 4.1, 6.3; Lennander, supra note 11, at 131 & n. 11, 139 & n. 42; see also
SOU 2004:81, supra note 5, at 56, 150 (noting that the main purpose of the law was to allow heavily indebted
persons to lead a life that was more tolerable and more useful to society, and that the purpose of the law as a whole
to avoid costs to society had been achieved in the law’s first decade).
continuing to waste time and money attempting to collect otherwise unenforceable debts.18
Ultimately, the system would force a rational cost-benefit analysis of creditors’ continuing
ability to pursue insolvent debtors. Investigators argued that creditors’ enforcement rights under
these circumstances, “worthless on the best assessment,” bore “no reasonable proportion to the
social costs and the debtor’s and his family’s suffering.”19 Formalistic references to the notion of
pacta sunt servanda (agreements must be fulfilled) in this context, the proponents of the new law
observed, appeared “fairly hollow.”20
While the proposal for a new law was generally well received, the new conservative
government21—in particular the Justice Minister—was initially ambivalent about such a radical
departure from existing law, fearing a general destabilization of consumer credit markets and an
erosion of the bedrock principle of living up to one’s contracts.22 Concerned legislators,
however, did not allow the idea to die. In June 1993, the Riksdag ordered the government to
draft a consumer debt relief law along the lines of the systems in Norway and earlier legislative
proposals in Sweden.23 When the government returned with a draft law in February 1994,24 the
Riksdag wasted no time in offering consumers the relief they needed. After a brief debate on
May 5, 1994,25 the Riksdag adopted the government proposal for the new Debt Adjustment Law
(Skuldsaneringslagen26), effective July 1, 1994.27
B. Swedish Law and Practice Before 2007: Steps One, Two, and Three
Before the most recent reform of the Swedish Debt Adjustment Law, effective January 1,
2007,28 the process consisted of three consecutive “steps,” each of which was designed to require
active participation by the debtor to take responsibility for managing his or her own affairs.29
Though the structure of this system will change dramatically in 2007, most of its details will
continue largely unaltered after the reform. This Part opens with a brief overview of the pre-
reform process and continues with a more detailed discussion of certain central features.
18 See, PROP. 1993/94:123, supra note 5, § 6.3; Lennander, supra note 11, at 131, 139; SOU 2004:81, supra note 5,
at 56, 150-51.
19 See Lennander, supra note 11, at 140-41.
20 See Lennander, supra note 11, at 140.
21 In 1991, a four-party conservative coalition took control of the Swedish government from the long-time dominant
Social Democrats as a result of electoral discontent due to high unemployment, inflation, and flagging productivity.
See TONY GRIFFITHS, SCANDINAVIA 256-57 (2004); SWEDISH INSTITUTE, SWEDISH POLITICAL PARTIES (2003),
Social Democrats would return to power after the next election in September 1994. See SWEDISH PRIME MINISTERS
IN HISTORY, http://members.chello.se/dier/Swedish%20Prime%20Ministers.htm
22 See, e.g., PROP. 1993/94:123, supra note 5, § 2.2; Niemi-Kiesiläinen, supra note 1, at 495; Lennander, supra note
11, at 129, 140.
23 See PROP. 1993/94:123, supra note 5, §§ 1, 2.2-2.3; 4.1; SOU 2004:81, supra note 5, at 56. Anxious legislators
originally ordered the government to prepare the new law to be effective on January 1, 1994. See PROP.
1993/94:123, supra note 5, § 2.3.
24 See PROP. 1993/94:123, supra note 5.
25 The legis lative debate is available online, see KAMMARENS PROTOKOLL 1993/94:103, §§ 4, 8 (May 5, 1994), at
26 SFS 1994:334.
27 See SOU 2004:81, supra note 5, at 56.
28 See infra Part I.C.
29 See PROP. 1993/94:123, supra note 5, § 4.1; SOU 2004:81, supra note 5, at 57-58.
Originally, each case had to begin with “Step One,” the debtor’s attempt “by his own
hand” to reach an informal voluntary arrangement with his creditors.30 If every creditor accepted
the debtor’s proposal, the case ended with this consensual (if perhaps temporary) resolution. If,
as was far more commonly the case, any creditor refused the voluntary workout, the case
proceeded to “Step Two,” submission of a petition for entry into the formal debt adjustment
system. Petitions are submitted not to the courts, but to the primary administrator of this system,
the state Enforcement Agency (Kronofogdemyndigheten, commonly abbreviated KFM31).
Formerly an arm of the Tax Service (Skatteverket), but now a free-standing agency, 32 the KFM’s
primary function is to act as the official enforcer of obligations, both public and private, similar
to the county sheriff in the United States or the huissier de justice in France.33 In its role as
administrator of the consumer debt adjustment system, the KFM reviews petitions for relief to
see if the applicant meets the criteria for entry into the system (discussed below), and if so, it
applies budgetary guidelines established by the Tax Service to formulate a payment plan
dedicating all of the debtor’s excess income to creditors, generally over a five-year period. Here
again, until the most recent reform of the law, the KFM could only propose the payment plan to
creditors. If any creditor objected (for any or no reason), the KFM had to transfer the case to the
local general district court for “Step Three,” which in most cases resulted in a court-ordered
cram-down of the KFM-developed payment plan. Upon completion of the plan, the debtor is
discharged of responsibility for any unpaid portion of the debts encompassed by the plan. 34
1. Budget- and Debt-Counseling and the Failure of “Step One”
In theory, requiring debtors to attempt an informal workout with creditors in “Step One”
was supposed to emphasize the debtor’s own responsibility for taking control of and managing
his or her financial affairs.35 Of course, in practice, consumers were seldom equipped to make
this attempt actually on their own, so most debtors relied on the “budget- and debt-counseling”
services that the law requires all municipalities to provide to their residents.36 After an in-depth
30 See SOU 2004:81, supra note 5, at 57.
31 See SOU 2004:81, supra note 5, at 15.
32 In June 2006, the legislature voted to restructure the organization of the KFM, effective July 1, 2006, to create
one central administration, separate from the Tax Service but still coordinating certain functions with it. See
BETÄNKANDE 2005/06:SkU35, online at
http://www.riksdagen.se/webbnav/index.aspx?nid=3322&rm=2005/06&bet=SkU35; PROPOSITION 2005/06:200, EN
KRONOFODGEMYNDIGHET I TIDEN, online at http://www.regeringen.se/content/1/c6/06/21/83/cc78cd01.pdf.
33 See generally EN KRONOFOGDEMYNDIGHET I TIDEN , SOU 2003:97, §§ 2.1-2.3, 3.3, 4.1-4.2.2, online at
http://www.regeringen.se/sb/d/108/a/1545. This report contains an enlightening comparison of the enforcement
agencies of other countries, such as sheriffs and bailiffs in England, huissiers de justice in France, and the
Gerichtsvollzieher in Germany. See id. §§ 7.1-7.2. For a current discussion of the KFM’s operations, see ÖVRIGT
OM OSS, http://kronofogden.se/meny/ovrigtomoss/ovrigtomoss.106.65fc817e1077c25b832800015644.html.
34 See SOU 2004:81, supra note 5, at 58, 65.
35 See PROP. 1993/94:123, supra note 5, § 4.1; SOU 2004:81, supra note 5, at 91-92, 210. This first required step
came to be called the “own attempt” (egenförsöket). See id. Every continental European consumer debt relief
system imposes a similar pre -bankruptcy negotiation requirement. See, e.g., Kilborn, German Law, supra note 2, at
273; Kilborn, Dutch Law, supra note 2, at 94; Kilborn, French Law, supra note 2, at 635; Kilborn, Belgium and
Luxembourg, supra note 2, at 80.
36 See SOU 2004:81, supra note 5, at 93-94, 164, 210 (citing a government study that found that just over 80% of
debtors who made it into the formal system had sought help in “step one” from a budget- and debt-counselor).
Approximately 560 counseling agencies are active throughout Sweden today. See PROP. 2005/06:124, ETT ENKLARE
OCH SNABBARE SKULDSANERINGSFÖRFARANDE, 39, online at http://www.regeringen.se/content/1/c6/05/88/54/
f6bba3ad.pdf. Not all local authorities complied with this legal requirement to offer what we in the U.S. would call
examination of the debtor’s financial situation, the counselor would draw up a workout proposal
to be submitted to all of the debtor’s creditors.37
The very limited statistics38 on the results of budget- and debt-counseling reveal that
many debtors have managed to reach informal agreement with their creditors with the help of
counselors. In 2002 and 2003, the most recent years for which reliable, publicly reported data
are available, creditors accepted informal payment plans in 40-45% of the counseling cases
where plans were proposed.39
It is not clear, however, how many of these debtors might have been candidates for the
formal debt adjustment system. Many of these cases likely involved solvent or near solvent
debtors who simply sought help bringing order to their diverse obligations. Publicly available
counseling statistics do not break out financial information specifically for the debtors for whom
workout proposals were submitted, so heavily indebted insolvent debtors who might have
qualified for a formal debt adjustment might be markedly underrepresented in the 40% of
accepted proposals. This theory finds support in comments by the Consumer Service
(Konsumentverket), the government agency that collects these data. It has observed consistently
in its reports that total debt levels had a far greater impact on the likelihood of a consensual
workout than even the total amount that debtors could offer their creditors.40 In cases with a
“credit counseling,” but only a handful of the 290 municipalities have failed to comply from year to year. Many
smaller municipalities contracted with credit counseling providers in larger neighboring areas to provide services for
their residents. See, e.g., SOU 2004:81, supra note 5, at 94. The nature and quality of these services vary
significantly from locality to locality, though. See PROP. 2005/06:124, supra note 36, at 37.
37 In practice, the KFMs and courts eventually softened the requirement, demanding only that the debtor send the
proposal to the majority of creditors and those holding the largest claims. See SOU 2004:81, supra note 5, at 93.
38 The Consumer Service (Konsumentverket, commonly abbreviated “KOV”) began collecting statistics from local
budget- and debt-counselors in 2000, though statistics on the results of counseling arrive only from those local
offices that choose to submit data. From 2000 to 2003 (the last year for which data have been publicly reported), the
percentage of local offices submitting counseling data rose from just over 25% to 36%, though the KOV considers
the statistics for 2002 and 2003 to be generally representative, given the size and location of the offices reporting.
See KONSUMENTVERKET, EN SAMORDNAD UPPFÖLJNING AV SKULDSANERINGSPROCESSEN, PM 2004:17, at 5, online
[hereinafter, KOV REPORT 2003]; KONSUMENTVERKET, EN SAMORDNAD UPPFÖLJNING AV
SKULDSANERINGSPROCESSEN, PM 2003:26, at 5, online at
[hereinafter, KOV REPORT 2002]; KONSUMENTVERKET, KOMMUNAL BUDGET- OCH SKULDRÅDGIVNING ÅR 2001,
RAPPORT 2002:8, at 15, online at <http://www.konsumentverket.se/Documents/rapporter/2002/2002_08.pdf>
[hereinafter, KOV REPORT 2001]; KONSUMENTVERKET, KOMMUNAL BUDGET- OCH SKULDRÅDGIVNING ÅR 2000,
RAPPORT 2001:6, at 14, online at <http://www.konsumentverket.se/Documents/rapporter/2001/2001_6.pdf>
[hereinafter, KOV REPORT 2000].
39 See KOV REPORT 2003, supra note 38, at 10; KOV REPORT 2002, supra note 38, at 9.
40 See KOV REPORT 2003, supra note 38, at 12; KOV REPORT 2002, supra note 38, at 11; see also KOV REPORT
2001, supra note 38, at 28 (same); KOV REPORT 2000, supra note 38, at 23 (same). Unfortunately, the data in these
reports are presented in a relatively unhelpful way, reporting on the percentage of total consensual workouts versus
the percentage of total formal debt adjustment petitions where total debt load and total amount offered to creditors
fell within certain ranges. The data do not indicate what percentage of the total relevant cases—those in which a
consensual workout was proposed—exhibited similar debt levels and amounts offered to creditors, so it is difficult
to draw convincing correlations between debt levels and likelihood of creditor acceptance of a workout. Earlier
tables from the same reports, however, indicate that very high debt and high offer amount were present in only a
small percentage of total cases (even those in which no consensual workout was sought). See KOV REPORT 2003,
supra note 38, at 6; KOV REPORT 2002, supra note 38, at 6; KOV REPORT 2001, supra note 38, at 21-22; KOV
heavier debt load (over 200,000 crowns, about $37,50041), the Consumer Service concluded that
the Step-One proposal was “often a formality.”42
Moreover, it is not clear whether the debtors with accepted plans actually managed to
complete their plans. Counselors report that they have more freedom in the informal stage than
the KFM has in the formal process because counselors can offer payments from exempt income
over a period longer than 5 years.43 Of course, this can be both a blessing and a curse, especially
as plans stretch out over many years. One small academic study from the late 1990s suggested
that informal plans lasting 10 years or more were not uncommon. 44 This same source suggested
that the failure rate for such informal workout plans was, not surprisingly, quite high—about
70%.45 Even in cases in which Step One has produced a “success,” that success is often
tempered and probably temporary.
If any creditor refused to accept the proposed workout, Step One had failed, and
counselors generally continued to help debtors in filling out and submitting their petitions for
“Step Two,” a formal debt adjustment case with the KFM. Counselors also often continued to
support debtors throughout the formal process (filling the function of debtor’s lawyers in the
United States).46 Far fewer formal petitions have been lodged annually than expected.47 Filing
levels were fairly stable between 1997 and 2003, ranging between 3200-3500 per year, though
they jumped to 3678 in 2004 and to 4178 in 2005.48 The Consumer and Tax Services in
particular note that there must be thousands of people with unmet need for debt relief, judging by
the hundreds of thousands of individuals constantly in the KFM’s collections register.49
REPORT 2000, supra note 38, at 19-20 (indicating that, year after year, only about 25-30% of all debtors seeking
counseling could offer creditors more than 1500 crowns—about $180—above the exemption level per month, and
only about 10% had total debt exceeding 1 million crowns—about $125,000—not counting home mortgage or
student loan debts). Thus, it stands to reason that these cases would constitute a small percentage of the cases in
which creditors either accepted or rejected consensual workouts. The Consumer Service’s conclusion is intuitively
sound, and it is consistent with similar conclusions from analysis of the Dutch system, see Kilborn, Dutch Law,
supra note 2, at 90-91, 96-97, but the data presented in these reports are disappointingly limited.
41 The average conversion rate for Swedish Crowns to U.S. Dollars in 2003 was just over 8. See www.oanda.com/
convert/fxhistory. This conversion rate also fairly accurately represents the recent comparative purchasing power of
Swedish Crowns and U.S. Dollars in their respective local markets. See infra note 103.
42 See KOV REPORT 2003, supra note 38, at 12.
43 See SOU 2004:81, supra note 5, at 96; Anna Lorentzon, “Skuldsaneringslagen är misslyckad,” DAGENS
NYHETER, Aug. 6, 2004, online at http://www.dn.se/DNet/jsp/polopoly.jsp?a=294766 (noting that plans longer than
5 years allow debtors to avoid living under the extreme economic pressure that a 5-year plan requires).
44 See Sue McGregor at al., Comparative analysis of Canadian, American and Swedish bankruptcy policy: why do
governments legislate consumer debt?, 25 INT’L J. CONS. STUD. 208, 209, 215 (2001).
45 See id. at 212.
46 See SOU 2004:81, supra note 5, at 96-97.
47 See SOU 2004:81, supra note 5, at 109 (noting that legislators expected about 12,000 petitions per year, as
compared with the approximately 3500 petitions per year filed during the first decade of the new law).
48 See SOU 2004:81, supra note 5, at 110 tbl. 6.1; SKATTEVERKET, SKULDSANERING—ANTAL ANSÖKNIGAR OM
SKULDSANERING, online at
49 See KONSUMENTVERKET, LÅNGT FLER SKULDSATTA BEHÖVER HJÄLP , Press release Apr. 6, 2006, online at
REPORT 2003, supra note 38, at 19; KOV REPORT 2002, supra note 38, at 16; SOU 2004:81, supra note 5, at 144-45
(noting that 430,000-500,000 people each year from 1994-2002 were pursued for debt by the KFM, and that a study
in 2002 found that 17,500 of these debtors had been continuously pursued for debt by the KFM since 1998); PM
2. Limited Access to “Step Two” and the Formal Process
Consistent with its economic “benefit-to-society” focus, the formal part of the system
contains strict controls on both entry and exit. At the front end, the KFM scrutinizes each
petition to ensure that the case is ripe and qualified for relief. Careful screening of cases at the
outset is a unique aspect of the consumer debt relief systems in Sweden and other Nordic
states.50 In Sweden, debt readjustment is a privilege for which the debtor must demonstrate
“how deserving his case is.”51 This pre-screening stage is the functional equivalent of an
automatic denial of discharge evaluation in the United States; the Swedish system simply places
this evaluation at the very beginning to avoid expending time and resources on cases unqualified
for relief. The grounds for denying access to relief in Sweden are in some respects similar to the
grounds for denying discharge in the United States, though they are in many ways quite vague
and potentially much broader than in the United States.
Generally, a debt adjustment is a once-in-a-lifetime opportunity, though a second pass
through the system is theoretically available for “extreme reasons.”52 Also, the law is reserved
for the seriously overburdened, so the debtor must exhibit what the preparatory works call
“qualified insolvency.”53 The debtor must be unable to pay his or her debts as they come due,
and that inability must be expected to continue through a “foreseeable period.”54 The law is
unclear on how far into the future one can reasonably be expected to see, but it seems clear that
the debtor must not be likely to regain solvency within at least the 5-year term of a standard
2003:04, supra note 5, at 13 (reporting that the total amount owed by the individuals in the KFM’s collection
register had risen from about 18 billion crowns in 1990 to over 47 billion crowns in 2002, with both numbers
adjusted for inflation through 2002).
50 See PROP. 1993/94:123, supra note 5, § 4.3.3; SOU 2004:81, supra note 5, at 83, 90; Niemi-Kiesiläinen, supra
note 1, at 482-97 (comparing and contrasting existing European consumer debt adjustment regimes).
51 See Lennander, supra note 11, at 147.
52 See SOU 2004:81, supra note 5, at 60. The types of extreme exceptions envisioned include, for example, where
the debtor had undergone a debt rehabilitation early in life and then, after a long period, again fell into extreme
overindebtedness as a result of illness, premature retirement, or long-term unemployment. See id.
53 See PROP. 1993/94:123, supra note 5, § 4.3.2; Lennander, supra note 11, at 143-45; SOU 2004:81, supra note 5,
54 The “unable to pay his or her debts as they come due” test for insolvency was adopted from the existing business-
focused Bankruptcy Law. See PROP. 1993/94:123, supra note 5, § 4.3.2; SOU 2004:81, supra note 5, at 60. Though
some courts have reportedly required a minimum debt level of 200,000 crowns, about $25,000, lawmakers
intentionally omitted mention of a “minimum” debt level for access to the system. See PROP. 1993/94:123, supra
note 5, § 4.3.2; Lennander, supra note 11, at 145; McGregor et al., supra note 44, at 214; SOU 2004:81, supra note
5, at 61. Indeed, the Supreme Court was called upon twice in the early years of the new system to reverse lower-
court denials of petitions for “insufficiently indebted” individuals. See NJA 1997:46 s. 229 (HD case no. Ö4020-
96), online at www.rattsinfosok.dom.se/lagrummet/index.jsp (reversing denial of petition of debtor whose debts
totaled only about 95,000 crowns, about $11,875); NJA 1996:87 s. 548 (HD case no. Ö5483-95) (reversing denial of
petition of debtor whose debts totalled only about 175,000 crowns, about $21,875). These cases emphasize that the
debtor’s income and consequent ability (or lack thereof) to pay these debts within the foreseeable future is the
question, not the size of the debts in isolation.
55 See Lennander, supra note 11, at 144 (suggesting 5-10 years as the “foreseeability” horizon); see also NJA
1997:124 s. 750 (HD case no. Ö3743-96), online at www.rattsinfosok.dom.se/lagrummet/index.jsp (reversing
appeals court and ordering implementation of a zero-payment plan, though the debtors were 36 and 39, steadily
employed, and their children would leave home within 5-6 years, increasing the amount the debtors could apply to
their debts, because they could not be expected to offer significant payments to creditors “within the next five
The primary entry hurdle is an opaque requirement of “reasonableness.” A debtor is
admitted into the formal system only if the KFM’s evaluation of the debtor’s “personal and
economic conditions” indicates that “it is reasonable . . . that a debt adjustment should be
granted.”56 Lawmakers had debated reversing the phrasing of this requirement; that is, to grant
petitions unless circumstances indicated that it would be unreasonable to do so.57 In the most
recent evaluation of the law, the recommendation was advanced again to reverse the presumption
and to rephrase the reasonableness requirement,58 but this recommendation again died before it
even reached the legislative committee.59 The Supreme Court (Högsta Domstolen), however,
seems rather clearly to have taken the position that petitions should be denied only if the record
contains sufficient support for a rejection.60
Thus, in practice, it is apparently not altogether clear whether the debtor bears the burden
of proving deservedness, or the KFM bears the burden of supporting a rejection, but one thing is
quite clear: many petitions are rejected. From implementation of the new law in mid-1994
through 2001, the KFMs rejected a fairly consistent average of about 40% of all petitions, though
years”). The preparatory works of the law suggest that uncertainty regarding the debtor’s likely economic future
might prevent the initiation of a debt adjustment case. See PROP. 1993/94:123, supra note 5, § 4.3.2 (suggesting
that temporary unemployment due to economic downturn would not offer the required level of certain extended
inability to pay); Lennander, supra note 11, at 144; SOU 2004:81, supra note 5, at 60. Recent jurisprudence from
the Supreme Court, however, seems to read this requirement much more liberally. See NJA 2003:64 s.437 (HD case
number Ö2436-02), online at www.rattsinfosok.dom.se/lagrummet/index.jsp. The intriguing facts of this case are as
follows: In 2001, a 33-year old single mother applied for a debt adjustment. She had taken the examination to be
licensed as a lawyer, but her poor performance on the exam had hindered her in the competitive market for law jobs.
Incidentally, the court identified the would-be lawyer only by her somewhat ironic (to an American reader) initials:
J.D. The district court on appeal by a creditor rejected her petition based on the court’s inability to come to a solid
conclusion with respect to her long-term economic distress. It reasoned that she was a relatively young person with
a law degree who might well better her economic outlook in the future. The appeals court affirmed the denial, but
the Supreme Court reversed, ordering her petition to be approved. The Supreme Court observed that J.D.’s income
and career opportunities were “limited,” and she had tried unsuccessfully to find higher paying employment than her
current government position. The court observed that her possibilities for improving her situation were “unsure,”
but she had nearly no outlook for a betterment that would allow her to pay the rapidly accruing interest on her
outstanding debt. The court seems to have reversed the earlier approach to the standard of qualified insolvency.
Now, the debtor is qualifiedly insolvent only if it is not relatively clear that the debtor’s situation will improve, even
if it is not absolutely clear that it will not improve. See also NJA 1996:49 s. 324 (HD case no. Ö4037-95) (affirming
a granted petition, even though the debtor’s debt totaled less than $100,000, he was only 29 years old with consistent
employment and no support obligations, and he had good earning potential, explaining simply that “he will not be
able to pay his debts within a foreseeable period”).
56 See SOU 2004:81, supra note 5, at 61.
57 See PROP. 1993/94:123, supra note 5, § 4.3.3; SOU 2004:81, supra note 5, at 152.
58 See SOU 2004:81, supra note 5, at 223-24.
59 See PROP. 2005/06:124, supra note 36, at 40-42. The government collected feedback from a diverse group of
interests on this proposal, including many creditor representatives. See id. app. 3 at 116 (listing surveyed parties).
A narrow majority of the interests surveyed either supported or did not object to this proposal to change the
presumption of reasonableness, but the government eliminated the proposal from its proposition, explaining simply
that “the requirement for reasonableness is not too high.” See id. at 40-41. Opponents of the change simply noted
that the current formulation allowed for an adequately nuanced and not overly demanding evaluation of each case.
See id. at 40-41. Some also noted the pedagogical value of the current formulation’s sending a clear signal to
society about payment morality. See id. at 41. The government indicated its willingness to return to this question
later, however. See id. at 42.
60 See NJA 1996:86 s. 543 (HD case no. Ö4440-95), online at http://www.rattsinfosok.dom.se/lagrummet/index.jsp.
the rejection rate by 2002 and 2003 had fallen to about 30%.61 Adding to this about 12%-14% of
petitions per year withdrawn voluntarily by debtors, fewer than half of all cases have made it
past the “screening” stage of Step Two into the formal system, though nearly 60% have
continued in more recent years.62 No publicly available data exist on the specific bases for
rejection of these petitions, but insufficient efforts in the “Step One” consensual workout process
reportedly accounted for many rejections.63 With the imminent abandonment of that first
required step in 2007,64 presumably the rejection rate will fall even further in the coming years.
The law highlights several factors that should be especially considered in this
“reasonableness” judgment. First, the KFM must consider “the debts’ age.”65 In other words,
the majority of the debtor’s obligations must be sufficiently old to show that the debtor has
wrestled with them and tried unsuccessfully to manage his or her own debt burden, leaving a
formal debt adjustment as a last resort.66 The preparatory works for the law suggest that most of
the debtor’s obligations should be at least three or four years old for this factor to weigh in favor
of a debt adjustment.67 The Supreme Court altered the question somewhat in 1997, holding that
three years should have passed from the point at which the debtor’s debt problems first
appeared—not any particular obligation or series of obligations.68 The test is now significantly
more ambiguous than before, but the idea remains that the debtor must spend significant time in
a sort of debt purgatory before being allowed to pass through the pearly gates of debt
Second, the KFM must consider the circumstances giving rise to the debtor’s
obligations.69 Though significant debt arising from “luxury consumption” might run afoul of this
factor,70 I found no evidence that this consideration regularly prevents consumer access to the
system.71 The focus seems to be elsewhere. The creators of the new law insisted upon the
notion that “criminal, unfair and speculative debt incurrence shall not be rewarded,”72 though
61 See SOU 2004:81, supra note 5, at 110 tbl. 6.1 (reporting a rejection rate ranging from 29% in 2000 to 67% in
1997). This conclusion is supported by later, more accurate statistics based on closed cases and the reasons for
closure. See KOV REPORT 2003, supra note 38, at 17 (reporting 940 cases rejected of a total of 3103 closed cases —
30%—in 2003); KOV REPORT 2002, supra note 38, at 15 (reporting 1089 cases rejected of a total of 3496 closed
62 See, e.g., McGregor et al., supra note 44, at 209; SOU 2004:81, supra note 5, at 110; KOV REPORT 2003, supra
note 38, at 17 (reporting 1771 cases accepted of a total of 3103 closed cases—57%—in 2003); KOV REPORT 2002,
supra note 38, at 15 (reporting 2023 cases accepted of a total of 3496 closed cases—58%—in 2002).
63 See SOU 2004:81, supra note 5, at 223; see infra note 78 (explaining that the debtor’s efforts in Step One were
considered in connection with the “efforts to fulfill obligations” reasonableness factor).
64 See infra Part I.C.1.
65 See PROP. 1993/94:123, supra note 5, § 4.3.3.
66 See SOU 2004:81, supra note 5, at 61.
67 See PROP. 1993/94:123, supra note 5, § 4.3.3; SOU 2004:81, supra note 5, at 61; see also Lennander, supra note
11, at 145-46; McGregor et al., supra note 44, at 214 (suggesting that some KFMs require a 5-year average).
68 See NJA 1997:68 s. 341 (HD case no. Ö3293-96), online at www.rattsinfosok.dom.se/lagrummet/index.jsp.
69 See PROP. 1993/94:123, supra note 5, § 4.3.3; SOU 2004:81, supra note 5, at 61.
70 See SOU 2004:81, supra note 5, at 62.
71 But see Klara Ledin, Blacolåntagare ofta ensamstående föräldrar, DAGENS NYHETER, Mar. 4, 2006, online at
http://www.dn.se/DNet/jsp/polopoly.jsp?a=526340 (quoting one KFM representative, explaining that debtors with
many unsecured loans might have their petitions rejected, as the presence of many unsecured loans might constitute
a “complicating factor”).
72 See Lennander, supra note 11, at 146-47.
they emphasized that no clear line of exclusion could be drawn.73 Large criminal reparations
debts and even numerous parking tickets have weighed against access to the system,74 though
accounting fraud convictions, for example, ha ve posed no barrier to entry in several reported
cases.75 Of the nearly dozen cases that reached the Supreme Court by mid-2006 on the subject of
admission to the debt adjustment system, only two resulted in judgments against the debtor: One
affirmed the rejection of the petition of a couple whose debts arose from securities and real estate
speculation, activity that the court observed involved “a clearly speculative element” and “high
risk-taking.”76 The other affirmed the rejection of the petition of a former business owner who
had fallen into the common trap of diverting to his private business use the withholding amounts
for his employees’ payroll taxes, social security charges, and value-added taxes.77 This “nature
of the debts” factor seems to serve simply as a pressure valve for “patently undeserving” cases.
Finally, the KFM must consider the efforts the debtor has made to fulfill his or her
obligations.78 Obviously, evading creditors and fraudulently conveying assets to friends or
relatives would weigh against the debtor, but so also would “voluntarily avoid[ing] working full
time or not actively seeking work.”79 Not so obvious, though, is an important aspect of the
subtext of this requirement. The law implicitly requires the debtor to have applied the value of
all of his or her nonessential assets80 to attempt to pay off debt.81 In other words, the Swedish
system requires the debtor him or herself to liquidate all non-essential property as a precursor to
seeking formal relief, much like other Northern European systems require a liquidator to sell the
73 See PROP. 1993/94:123, supra note 5, § 4.3.3.
74 See SOU 2004:81, supra note 5, at 62.
75 See, e.g., NJA 2003:64 s. 437 (HD case no. Ö2436-02), online at www.rattsinfosok.dom.se/lagrummet/index.jsp;
NJA 1998:86 s. 543 (HD case no. Ö4440-95); SOU 2004:81, supra note 5, at 154; PROP. 2005/06:124, supra note
36, at 41.
76 See NJA 2001:86 s. 601 (HD case no. Ö4934-99), online at www.rattsinfosok.dom.se/lagrummet/index.jsp.
77 See NJA 1998:41 s. 259 (HD case no. Ö2326-96), online at www.rattsinfosok.dom.se/lagrummet/index.jsp.
78 See SOU 2004:81, supra note 5, at 61-62; see also Lennander, supra note 11, at 147. Before the recent reform,
this factor also included consideration of the debtor’s efforts to reach a voluntary arrangement in Step One, see
supra Part I.B.1, though this is no longer an explicit item for consideration, see infra Part I.C.1. Along these same
lines, the law emphasizes that the KFM should consider the debtor’s cooperation in the debt adjustment proceedings;
e.g., if the debtor has provided full and accurate disclosure of assets, income, and liabilities. As one would expect,
failure of cooperation in the debt adjustment process is uncommon. See SOU 2004:81, supra note 5, at 61, 63.
79 See SOU 2004:81, supra note 5, at 62-63.
80 The notion here appears to be nonessential assets, not non-exempt assets. For example, though most pension and
retirement accounts are exempt from seizure by creditors, some KFMs and courts require the debtor to withdraw
funds from or close such accounts to pay their debts, and if the Tax Service refuses to provide the requisite approval
for the early withdrawal or closure, the debtor might be denied access to debt adjustment. See SOU 2004:81, supra
note 5, at 178-79, 182-99 (describing the one reported case on this issue, in which a man with a pension account
worth 312,000 crowns—about $39,000—had requested permission to close the account prematurely, the Tax
Service refused his request, and his denial of access to the debt adjustment system was affirmed by the Appeals
Court). Debtors unable to close and withdraw their private retirement savings accounts or demand early payout of
retirement insurance (because the Tax Service has refused permission for premature access) have been admitted to
the debt adjustment system generally only if their accounts are relatively small (under 100,000 crowns, about
$12,500) or if the accounts or insurance will begin paying out only after many years (generally 20 or more years in
the future). See id. at 196-99, 206. Part of the recent law reform encourages the Tax Service to grant debtors’
requests to access their restricted-withdrawal pension and retirement savings and insurance to avoid being denied
access to the debt adjustment system. See PROP. 2005/06:124, supra note 36, at 65-66.
81 See, e.g., PROP. 1993/94:123, supra note 5, § 4.3.2; SOU 2004:81, supra note 5, at 177-79.
debtor’s non-exempt assets as a required step in their formal debt relief systems.82 Most debtors
lack assets that can or must be liquidated,83 but whether or not the debtor must sell his or her
home and move to a rental apartment, for example, has been a point of contention. In an early
case, the Supreme Court clarified that the debtor must sell his home only if this would benefit
creditors, either by realizing on the debtor’s substantial equity in the home or by significantly
reducing the debtor’s living expenses.84
3. Another Offer to Creditors . . . Even If the Debtor Can’t Pay
If the KFM approves the petition, an automatic stay of creditor enforcement goes into
effect85 for all claims that are subject to debt adjustment.86 The KFM posts a notice of case
82 See, e.g., Kilborn, German Law, supra note 2, at 278; Kilborn, Dutch Law, supra note 2, at 97; Kilborn, French
Law, supra note 2, at 659.
83 See SOU 2004:81, supra note 5, at 177.
84 See NJA 1999:97 s. 218 (HD case no. Ö1954-98), online at http://www.rattsinfosok.dom.se/lagrummet/index.jsp.
The court noted in this case, and in many others, that heavily indebted individuals often face a catch-22 in seeking
less expensive rental space, as their applications for housing are rejected due to their poor creditworthiness.
85 See SOU 2004:81, supra note 5, at 66, 115-16. One effect of the automatic stay is that most debtors will
accumulate some small savings when ongoing wage garnishments are stopped but the payment plan is not yet in
place. Most KFMs require debtors to apply these savings to their debts as part of the ultimate payment plan—under
penalty of having the case rejected if the debtor uses the money for other purposes. As a result, the functional
payment period of plans often extends a few months longer than 5 years. See SOU 2004:81, supra note 5, at 230-
31; PROP. 2005/06:124, supra note 36, at 56. On the other hand, many KFMs realize that debtors who have lived
under wage garnishment for years are in desperate need of medical or dental care, so they allow debtors to use the
savings for eyeglasses, dental care, or other necessity expenses. See SOU 2004:81, supra note 5, at 116-17, 230. A
proposal to begin the 5-year plan period as soon as the KFM approves the petition was recently rejected, so this
“problem” will continue with respect to the approximately 4-month period between case opening and development
of the payment plan, see PROP. 2005/06:124, supra note 36, at 49-50, though the previous problem of putting off the
beginning of the plan until all appeals had been exhausted has been resolved by giving the KFM’s plan immediate
legal force. See id. at 56-57.
86 The range of debts not subject to adjustment is narrow. Secured debts are unaffected to the extent of the value of
the security. See, e.g., PROP. 1993/94:123, supra note 5, § 4.6.5; Lennander, supra note 11, at 151 (noting that
“security” in this context includes the right to pursue third-party guarantors, as well as rights under reservation of
title clauses and similar quasi-security measures in contracts). In addition, student loan debts that are not yet due are
excepted (as are other debts not yet due, such as future rent and tax obligations). See PROP. 1993/94:123, supra note
5, § 4.6; SOU 2004:81, supra note 5, at 64-65, 148; PROP. 2005/06:124, supra note 36, at 43. Swedish law offers
generous support for student living expenses in the form of state loans. It also contains three separate systems for
repaying these state-funded student loans, requiring annual payments of a certain portion of the borrower’s income,
leading to often very long repayment periods. See, e.g., PM 2003:04, supra note 5, at 25; PROP. 1993/94:123, supra
note 5, § 4.6.3; Lennander, supra note 11, at 149-50. A separate government agency administers this program (the
Centrala Studiestödsnämnden, commonly abbreviated “CSN”) and offers forbearances to borrowers in financial
difficulty. See SOU 2004:81, supra note 5, at 65. The CSN also refers collection cases to the KFM, however,
where forbearances are either not requested or deemed inappropriate. Problems with student loan collections are
apparently significant in Sweden. In mid-2003, a prominent newspaper ran an article entitled “75,000 hunted for
student loans.” See Torbjörn Tenfält, 75.000 jagas för studieskuld, DAGENS NYHETER, June 22, 2003, online at
http://www.dn.se/DNet/jsp/polopoly.jsp?a=153898. The article described how 75,000 people were being pursued
by the KFM in its debt collection capacity for 845 million Swedish Crowns (about $100 million) in overdue student
loans. The overdue amount had nearly doubled in the preceding two years. See id.; see also PM 2003:04, supra
note 5, at 25 (noting the same 75,000 student loan debtors and remarking that most Swedes with higher education
have taken such CSN loans); Pernilla Anth Jacobsson, Svenska studenter mest skuldsatta, DAGENS NYHETER, Oct.
26, 2005, online at http://www.dn.se/DNet/jsp/polopoly.jsp?a=479351 (describing the Swedish student aid program
as among the most generous in the world, but noting that Swedish students are among the most indebted in the world
after college graduation).
opening, and creditors must file statements of claim with the KFM within one month to be
included in the payment plan developed by the KFM.87 Based on an examination of the claims
submitted88 and the information presented at a meeting of creditors and the debtor,89 the KFM
draws up a payment plan to be proposed to creditors.90
The original idea was to allow the KFM flexibility to be creative in crafting a plan that
creditors would accept, but instead, KFM practice has been largely standardized.91 This is
unsurprising, as the two key elements of the plan—the amount to offer creditors and the length
of the payment period—are largely controlled by law, regulation, or the debtor’s meager
The original rule with respect to plan length was that payments should run for five years,
though the KFM had some discretion to establish a shorter or even longer plan if special
circumstances warranted.92 In practice, this discretion was exercised very rarely. For example,
debtors who suffered from life-threatening illness or who were already at an advanced age were
sometimes offered three-year plans, but KFMs almost never proposed plans longer than five
years.93 Beginning in 2007, the law will no longer allow for plans exceeding five years.94 In all
but extraordinary cases, five-year plans will continue to be the rule.
The only factor that might really vary from plan to plan is the amount to be offered to
creditors, but the KFMs have not accepted the legislature’s invitation to develop creative
solutions here. From the beginning, lawmakers stressed the importance of imposing payment
guidelines that would offer debtors a realistic chance of fulfilling the plan requirements.95 In
determining the amount to be paid to creditors, the law directs that the general income exemption
to be reserved for the debtor’s support in wage garnishment cases should be considered
“guiding.”96 In practice, the KFMs have in most cases simply adopted the general exemption
level as the de facto rule.97 The KFMs have largely stood by their practice in basic debt
collection cases of simply taking income in excess of the debtor’s general income exemption.
87 See SOU 2004:81, supra note 5, at 65, 112.
88 See SOU 2004:81, supra note 5, at 118 (explaining that the KFM scrutinizes claims, though not explaining how
often, if at all, claims are found to be invalid or deficient in some respect).
89 This meeting is held only if the KFM considers it especially important to do so, which is apparently seldom, the
KFMs preferring to contact parties by telephone or letter. See SOU 2004:81, supra note 5, at 113, 117-19.
90 See SOU 2004:81, supra note 5, at 112.
91 See PROP. 1993/94:123, supra note 5, § 4.5; SOU 2004:81, supra note 5, at 65, 111, 119, 123-24.
92 See PROP. 1993/94:123, supra note 5, § 4.5.1; SOU 2004:81, supra note 5, at 127. The 5-year term was
apparently chosen as a compromise to avoid bringing the institution of consumer debt adjustment into disrepute
among creditors if a shorter period, such as three years, were allowed. See SOU 2004:81, supra note 5, at 235.
93 See SOU 2004:81, supra note 5, at 65, 127.
94 See PROP. 2005/06:124, supra note 36, at 51-52. After a plan is in place, it can be modified and extended to a
maximum of 7 total years if the debtor’s financial situation improves and more time is needed to capture the upside
for creditors. See infra note 142; PROP. 2005/06:124, supra note 36, at 59-60. The maximum of 7 years was chosen
because “[a] longer payment period would not be consistent with the law’s rehabilitative goal.” See id. at 60.
95 See PROP. 2005/06:124, supra note 36, at 48; PROP. 1993/94:123, supra note 5, § 4.5.2.
96 See PROP. 1993/94:123, supra note 5, § 4.5.2; SOU 2004:81, supra note 5, at 123; PROP. 2005/06:124, supra note
36, at 48.
97 See SOU 2004:81, supra note 5, at 65, 123-24.
Payment plans thus generally direct the debtor98 to distribute pro rata to creditors specific
monthly amounts representing anticipated income in excess of the general exemption and,
perhaps, an extra “buffer” (see below) for 60 months.99
Disposable income is thus determined by deducting the debtor’s general income
exemption (the so-called förbehållsbelopp, “reserve amount ”) from the debtor’s total after-tax
income from all sources, including state transfer payments, such as child and housing
allowances, unemployment and disability payments, and contributions to living expenses paid by
a non-filing spouse or cohabitant.100 The base “reserve amount” is established in the
Enforcement Code (Utsökningsbalken) and is recalculated for inflation and announced annually
by the Tax Service.101 The base living expense “reserve amounts” for 2006, for example, are as
98 Debtors generally make small payments monthly directly to each creditor, which has created both processing and
cost problems for debtors and creditors alike. See id. at 124-26, 231-33. The government rejected a reform proposal
to require payments to be made annually, with payments remaining in a “collection account” until year’s end. See
PROP. 2005/06:124, supra note 36, at 49-51 (citing concerns about debtors taking “loans” from these accounts
during the year, as well as post-petition creditors’ potentially seizing the collection account). It also rejected the
notion of having the KFMs administer the payments (as Chapter 13 trustees do in the U.S.), citing increased
administrative complexity and cost, with a resulting reduction in recovery for creditors. See id. at 51.
99 See SOU 2004:81, supra note 5, at 122-23, app. 3 at 299-305 (illustrating sample payment plan).
100 See SOU 2004:81, supra note 5, at 122-23; KONSUMENTVERKET , WWW.SKULDSANERING.INFO: RAPPORT FRÅN
SKULDSANERINGSPROJEKET DECEMBER 2001, at 55-56 (2002) [hereinafter, KOV/RSV REPORT 2001], online at
http://www.konsumentverket.se/Documents/ekonomi/Skulder/skuldsanering_rapport_feb_2002.pdf. If the debtor is
required to repay state transfer payments, such as excessive state support payments (underhållstöd), the amount of
the on-going repayment obligation might also be deducted from the debtor’s available income. See SOU 2004:81,
supra note 5, at 147. In some cases, the debtor’s budget might even include ongoing payments on debts that are not
covered by the debt adjustment law. See PROP. 1993/94:123, supra note 5, § 4.5.2.
101 See UTSÖKNINGSBALKEN (SFS 1981:774) ch. 7, § 5, online at http://www.notisum.se/rnp/sls/lag/19810774.HTM;
SKATTEVERKET, SKATTEVERKETS FÖRESKRIFTER OM BESTÄMMANDE AV FÖRBEHÅLLSBELOPPET VID UTMÄTNING AV
LÖN M .M. UNDER ÅR 2006 (SKVFS 2005:27), online at
102 See SKATTEVERKET, SKVFS 2005:27, supra note 101; see also KONSUMENTVERKET, OM DU INTE BETALAR,
Enforcement Code (including the wage garnishment laws) are currently under intensive review, so the nature and
amount of exemption may change substantially in the coming years. See PROP. 2005/06:124, supra note 36, at 49.
Swedish Crowns/month U.S. $/month103
Single 4204 $525
Spouses/Cohabitants 6945 $870
Each child under 7 years old 2230 $280
Each child older than 7 2567 $320
Thus, for a family of three consisting of two adult cohabitants and one child under seven,
the law reserves 9175 crowns (about $1150) per month for food, clothing, and other household
expenses. For a single mother with one child over seven, the law shields as much as 6771
crowns (about $845) per month from creditors. This base exemption is supposed to cover all
household expenses other than housing costs (mortgage or rental payments), which are
separately allowed so long as they are “reasonable” according to internal Tax Service
guidelines.104 The housing guidelines take as the comparable norm the rental rates of municipal
housing corporations in the area of the debtor’s residence; in other words, the approximate
average rental rate in any given area.105 In addition, separate allowances are made for transport
costs to and from work, childcare expenses, as well as support and even sometimes extra medical
103 This conversion rate attempts to reflect purchasing power parity between U.S. Dollars and Swedish Crowns on
the respective local markets. See, e.g., http://www.oecd.org/std/ppp/. The World Bank’s International Comparison
Program suggested that the local purchasing power of the Swedish Crown in 2002 was about 96% of the official
exchange rate against the U.S. Dollar. See WORLD BANK, 2004 WORLD DEVELOPMENT INDICATORS 280, online at
http://siteresources.worldbank.org/ICPINT/Resources/Table5_7.pdf (reporting an official exchange rate of 9.74
SEK/US$ but a PPP for 2002 of 10.1 crowns to buy the equivalent of a dollar’s worth of products on the local
market). The OECD’s comparative price level indicators suggest that the disparity is even greater. See OECD,
MAIN ECONOMIC INDICATORS 264, 266 (May 2006), online at http://www.oecd.org/dataoecd/48/18/18598721.pdf
(explaining comparative price levels and reporting that the official exchange rate of Swedish Crowns to U.S. Dollars
should be increased by 18% to state the comparative purchasing power); OECD, PPPS FOR GDP-HISTORICAL SERIES
(Feb. 2006), online at http://www.oecd.org/dataoecd/61/56/1876133.xls (reporting a purchasing power conversion
rate of just over 9 Swedish Crowns to the U.S. Dollar from 1991 to 2005). I have compromised among these
competing indicators by increasing the official exchange rate for the first half of 2006 of 7.63 Swedish Crowns per
U.S. Dollar, see http://www.oanda.com/convert/fxhistory, increased by about 4% (consistent with the World Bank’s
2002 findings), and I rounded up (to move in the direction of the OECD indicators) to arrive at a rough conversion
rate of 8 SEK/US$. The result of this conservative conversion (in dollars) most likely substantially overstates the
purchasing power of the exemption amounts left to Swedish debtors.
104 See KOV/RSV REPORT 2001, supra note 100, at 55, 58. Whether housing costs are reasonable or not is also an
aspect of the screening process. Reducing living expenses to the extent possible is one way in which debtors must
demonstrate their efforts to deal with their debts—one of the “reasonableness” requirements for access to the formal
system. See supra note 78 and accompanying text. Excessive living expenses have led to denial of relief for some,
though this continues to be a litigated issue. See, e.g., RH 2004:78 (Svea Hovrätt case no. ÖÄ9637-03), online at
www.rattsinfosok.dom.se/lagrummet/index.jsp (affirming denial of petition because debtor’s monthly rent for a 5-
room apartment in an upscale region of Stockholm, 10,7654 crowns, about $1330, exceeded average rent for area,
and debtor could easily have moved to smaller and considerably less expensive quarters); cf. NJA 1998:105 s. 698
(HD case no. Ö3185-96) (reversing denial of debtor’s petition by KFM, district court, and appeals court for
excessive housing costs, where married debtors lived in a 4-room apartment for 5342 crowns, about $668, per
month, as no evidence showed that this rate exceeded average in local municipal housing corporations in the area).
105 See RH 2004:78 (Svea Hovrätt case no. ÖÄ9637-03), online at www.rattsinfosok.dom.se/lagrummet/index.jsp.
106 See KOV/RSV REPORT 2001, supra note 100, at 55; SOU 2004:81, supra note 5, at 124.
In debt adjustment plans, most KFMs also provide for a “buffer” (buffert), an extra
amount for possible unanticipated expenses.107 The law says nothing about such extra “buffers,”
but policymakers have voiced their approval of this practice.108 The existence and amount of this
buffer varies significantly among the KFMs.109 For example, in 2003, the KFM in Stockholm
generally included in debt adjustment plans an additional buffer of 200 crowns (about $25) per
month, the KFM in Malmö (one of the three largest cities in the country, in far southern Sweden)
added an additional allowance of 300-400 crowns per month ($40-$50), while the KFM in
Kalmar (a town of about 35,000 between Stockholm and Malmö) provided for a buffer only in
exceptional cases.110 With the unification of the KFM system under one head office in July
2006,111 these variations should be reduced. After a series of in-depth interviews with creditors
and debtors on their impressions of the system, the Tax Service has expressed a particular desire
to see a unified KFM policy on the grounds for including and measuring a buffer in the debtor’s
If the debtor has no disposable income after deducting these allowances, the KFM simply
presents creditors with a so-called “zero proposal” (nullförslag).113 If creditors accept this
proposal, the debtor is discharged of responsibility for her liabilities immediately.114 The
possibility that many debtors would have no payment capacity and would be freed of their debts
immediately was acknowledged from the very beginning.115 Apparently, creditors are often
willing to accept practical reality when the KFM attests to the debtor’s lack of payment capacity.
In about a quarter of all cases in 2002 and 2003, creditors accepted the KFM’s “zero
proposal.”116 The number of successful “zero proposal” cases is actually higher than this, as the
courts have been called upon to impose zero-payment plans on dissenting creditors in “Step
Three” in some cases (see below), though no statistics exist as to the exact number.117
Of the remaining “can pay” plans, few make any significant contribution to creditors. In
2002 and 2003, more than half of all KFM-proposed plans accepted by creditors paid a dividend
of 10% or less, and only about a quarter of plans paid more than 20%.118 Given the way in
which the data are reported, it is impossible to tell how much money these plans offered to
107 See SOU 2004:81, supra note 5, at 65.
108 See PROP. 2005/06:124, supra note 36, at 48-49. Certain surveyed parties argued for the inclusion of specific
statutory provisions relating to this “buffer,” but despite its support for the practice of including a buffer, the
government refused to include such specific provisions in its proposal. See id.
109 See SOU 2004:81, supra note 5, at 65, 123-24.
110 See SOU 2004:81, supra note 5, at 123-24.
111 See supra note 32.
112 See SKATTEVERKET, SÅ UPFATTAR GÄLDENÄRER OCH BORGENÄRER SKULDSANERINGSPROCESSEN, RAPPORT
2004:14, at 9, online at http://www.skatteverket.se/download/18.18e1b10334ebe8bc800027703/rapport200414.pdf.
113 See SOU 2004:81, supra note 5, at 120.
114 See SOU 2004:81, supra note 5, at 58, 65.
115 See PROP. 1993/94:123, supra note 5, § 4.5.1.
116 See KOV REPORT 2003, supra note 38, at 14 (reporting 23% “zero-plans” in 2003); KOV REPORT 2002, supra
note 38, at 12-13 (reporting 26% zero-plans in 2002).
117 See, e.g., NJA 1997:124 s. 750 (HD case no. Ö3743-96); NJA 1997:68 s. 341 (HD case no. Ö3293-96), online at
www.rattsinfosok.dom.se/lagrummet/index.jsp; see also KOV/RSV REPORT 2001, supra note 100, at 22 (reporting
that an estimated 35-40% of cases ended with zero-plans in 2001); PM 2003:04, supra note 5, at 44 (reporting on a
small study of three KFMs in 2002, in which the Consumer Service found that 31% of debtors lacked any payment
capacity, and over half could pay less than 1000 crowns, about $125, per month).
118 See KOV REPORT 2003, supra note 38, at 14; KOV REPORT 2002, supra note 38, at 13.
creditors. Judging roughly by the disposable income of all debtors seeking budget- and debt-
counseling in these years, however, it seems most likely that at least 70% of plans allocated less
than 1500 crowns per month to creditors—at most about $175 per month.119 Unfortunately, no
publicly available statistics track completion rates for these plans. Given the relatively moderate
budget allowances and low number of modification and dismissal hearings,120 it seems likely that
many debtors have managed to complete their plans.
After creditors receive the KFM’s proposed plan, they have about three weeks to submit
their votes on the plan, and those who fail to cast a vote during this period are deemed to
acquiesce.121 If no creditor objects within a short period, this “voluntary debt adjustment” goes
into effect.122 After an initial rocky period when creditors accepted virtually none of the KFM’s
proposed plans, creditors apparently soon realized the futility of opposing the inevitable. From
1998 to 2003, creditors accepted on average 70% of the KFM’s proposed plans.123 If the debtor
completes the plan, she or he is freed from further obligation on any unpaid amounts.124
4. “Step Three”: Court Ordered Cram-Down of “Coercive Debt
Adjustment” on Recalcitrant Creditors
If any creditor objected to the KFM’s proposal—for any or no reason—the KFM
originally had no option but to send the case on to the local district court for Step Three (though
this will change in 2007, see below).125 In addition, if the debtor was unhappy with the KFM’s
rejection of his or case at the screening stage,126 the district courts accepted appeals from debtors,
as well,127 but creditors who disagreed with the KFM’s acceptance of the case and proposal of a
plan enjoyed a mandatory and automatic “appeal” to the district court. Originally, lawmakers
were concerned about assigning to an agency—rather than a court—the power to deprive
creditors of their collection rights, a move that they feared might violate Article 6 of the
European Convention for the Protection of Human Rights and Fundamental Freedoms.128 In
119 See KOV REPORT 2003, supra note 38, at 12, 17 (reporting 70% of all counseling cases with payment capacity
under 1500 crowns, and 72% of plans paying less than a 20% dividend); KOV REPORT 2002, supra note 38, at 11,
13 (reporting 68% of all counseling cases with payment capacity under 1500 crowns, and 73% of plans paying less
than a 20% dividend).
120 See infra notes 139-46 and accompanying text.
121 See SOU 2004:81, supra note 5, at 112.
122 See SOU 2004:81, supra note 5, at 58, 119.
123 See SOU 2004:81, supra note 5, at 110 tbl. 6.1, 120; see also KOV REPORT 2003, supra note 38, at 17; KOV
REPORT 2002, supra note 38, at 15. Official statistics suggest that the acceptance rate between 1998 and 2002 was
only 50%, rising to 70% in 2003, see id. at 120, but this appears to be a statistical error. The Tax Service explained
that in years before 2003, if the KFM submitted more than one plan to creditors, as it apparently often did, the plans
were counted separately, whereas only one plan per case was counted in 2003. See id. Judging by general data on
petitions, rejections, and accepted KFM plans, it appears that the acceptance rate of KFM plans actually averaged
about 70% from 1998 to 2002, as well. See id. at 110 tbl. 6.1.
124 See SOU 2004:81, supra note 5, at 58, 65. Before the most recent reform, some plans specifically excluded
certain debts that had arisen shortly before the filing of the debtor’s petition, in effect offering only partial discharge
of debts. This discretion to except certain recent debt from discharge was used very infrequently, and it has been
eliminated in the new law. See PROP. 2005/06:124, supra note 36, at 45-46.
125 See SOU 2004:81, supra note 5, at 112, 128, 131.
126 See supra Part I.B.2.
127 See SOU 2004:81, supra note 5, at 131.
128 See PROP. 1993/94:123, supra note 5, §§ 4.1-4.2, 4.7.3-4.7.4; SOU 2004:81, supra note 5, at 131, 216.
Opponents of the reform to remove mandatory referral to the courts in Step Three again raised concerns about such a
both theory and practice, this final step has accomplished little more than lending some gravitas
to the proceedings, acknowledging the seriousness of depriving creditors of their “right” to
engage state support in collecting their debts.129
From 2001 to 2003, approximately 1600 debt adjustment cases made their way to the
district courts annually.130 On average, just over half of these were mandatory, automatic
referrals after creditors had refused the KFM’s proposal in “Step Two.”131 From 1998 to 2001,
the courts received on average about 1200 such referrals annually, falling to about 800 in 2002
and about 600 in 2003.132 Apparently, over time, creditors learned that defeating the KFM’s
proposal in Step Two offered only a temporary, Pyrrhic victory.
The courts generally held a hearing in each referral case, which in the estimation of
investigators represented little more than a “pure formality.”133 Creditors very seldom appeared
at these hearings,134 the courts generally relied on the record produced by the KFM, and the
KFM’s proposed plan was upheld and imposed on creditors in 90-95% of all cases.135 The
district court process in such cases generally concluded within one month from the referral of the
case from the KFM.136 The KFM gained a reputation in the courts for quality work and careful
case management, while courts criticized creditors for commonly objecting to plans without
offering any legal basis for their objections (other than general opposition to coercive debt
The other half of the courts’ debt adjustment caseload represented appeals from debtors
whose cases had been refused at the screening stage138 (about 300 per year from 2001 to 2003)
and petitions for modification or dismissal of on-going plans (about 475 per year from 2001 to
2003).139 Because debtors send their payments directly to creditors,140 creditors provide the only
check on debtor compliance through their ability to petition for modification or dismissal of
payment plans.141 The debtor’s failure to comply with the plan was the most common basis for
such motions, but creditors have also sought modification in cases where the debtor’s economic
substantial undermining of creditor rights being accomplished in an administrative agency rather than a court. See
LAGUTSKOTTETS BETÄNKANDET 2005/06:LU35, NY SKULDSANERINGSLAG, 11-12, 21, online at
129 See PROP. 2005/06:124, supra note 36, at 32.
130 See SOU 2004:81, supra note 5, at 130 & tbl. 7.1 (reporting 1854 total cases in 2001, 1504 in 2002, and 1373 in
2003). The Courts Service (Domstolsverket) apparently does not make its specific debt adjustment statistics
available to the public, so the cited report is the only publicly available source for these limited statistics. See
DOMSTOLSVERKET, STATISTIK, http://www.dom.se/templates/DV_InfoPage____868.aspx.
131 See supra Part I.B.3.
132 See SOU 2004:81, supra note 5, at 120 & tbl. 6.3; 130 & tbl. 7.1 (reporting 1022 referrals in 1998, 924 in 1999,
1504 in 2000, 1068 in 2001, 774 in 2002, and 586 in 2003).
133 See SOU 2004:81, supra note 5, at 141.
134 See SOU 2004:81, supra note 5, at 132-33.
135 See SOU 2004:81, supra note 5, at 133, 221; PROP. 2005/06:124, supra note 36, at 32.
136 See SOU 2004:81, supra note 5, at 167.
137 See SOU 2004:81, supra note 5, at 133; see also infra notes 170-73 and accompanying text.
138 The courts affirmed the KFM’s conclusion in 98% of such cases. See SOU 2004:81, supra note 5, at 221.
139 See SOU 2004:81, supra note 5, at 130-131 & tbl. 7.2 (reporting 321 appeals and 465 motions for modification
or dismissal for 2001, 268 and 462, respectively, for 2002, and 275 and 512, respectively, for 2003).
140 See supra note 98.
141 See SOU 2004:81, supra note 5, at 134.
situation had substantially improved midway through the plan period.142 On the other hand,
sometimes debtors have brought their own modification motions after their economic situation
Given the fairly low number of modification and dismissal motions per year, it appears
either that most debtors have complied with their plan obligations or that most creditors have
decided to avoid throwing good money after bad by financing a dismissal motion. Indeed, even
when creditors filed motions for modification or dismissal, they seldom appeared at the court
hearing.144 Unless the debtor had fallen three months or further behind on plan payments, courts
generally modified the plan rather than dismissing the case.145 From 2000 to 2003, only 180
total cases were dismissed, just under 10% of the approximately 1900 total motions for
modification or dismissal brought during that period.146
C. Evaluation, Reappraisal, and Reform
On the heels of several parliamentary and government reviews of the operation of the
new debt relief system between 1995 and 2001, the Swedish parliament (Riksdag) ordered the
government to commission an in-depth evaluation of the Debt Adjustment Law in November
2002.147 In August 2004, the investigators submitted their voluminous report, “A step toward a
simpler and quicker debt adjustment procedure.”148 The title of this report contains a clever
double-entendre that hints at the general proposal.149 In English, the first word of the title can
mean either “a” or “one.” In other words, the title might be understood alternatively as “One
step” toward a simpler and quicker procedure, and this is exactly what the investigators
proposed—eliminating “Step One” and “Step Three” of the existing procedure, reducing the
process to “one step” that would be far faster, more economical, and more effective than the
142 See SOU 2004:81, supra note 5, at 135-36. Unfortunately for debtors, creditors generally discover improvements
in the debtors’ financial lives by examining annual tax returns, so by the time the improvement is discovered and a
hearing for modification is held, the debtor has enjoyed as many as two years of windfall excess income and is
probably nearing the end of the plan’s 5-year term. See id. at 139, 236. Simple annual raises are usually left to the
debtor, but the courts strive to give creditors the retroactive benefits of more substantial improvements in the
debtor’s financial situation. In such cases, courts commonly extend the payment term of the plan up to another two
years (up to a maximum of 7 years), rather than increasing the payments to be made in the remaining shorter period.
See id. at 136-39, 236-37. This practice has been statutorily recognized in the new law. See PROP. 2005/06:124,
supra note 36, at 59-60.
143 See SOU 2004:81, supra note 5, at 135. In the early years of the new system, modification motions were
somewhat less common, and debtor motions for modification outnumbered those brought by creditors 2 to 1. See
KONSUMENTVERKET, OMPRÖVNINGAR AV SKULDSANERINGSBESLUT, RAPPORT 2000:14, at 11-12, 14, online at
http://www.konsumentverket.se/Documents/Rapporter/2000/2000_14.pdf (reporting only 182 petitions handled by
the courts from 1995 to early 1999, of which 118 were filed by debtors, though also noting that this may not
represent the complete set of petitions handled during this period). An early report reflects the effects of “local legal
culture,” as well, as the number of modification petitions in Göteborg outnumbered those in any other locality,
including Stockholm, but a factor of nearly 4 to 1. See id. at 16.
144 See SOU 2004:81, supra note 5, at 134.
145 See SOU 2004:81, supra note 5, at 135-36.
146 See SOU 2004:81, supra note 5, at 140-41 & tbl. 7.3 (reporting 35 cases dismissed in 2000, 33 in 2001, 48 in
2002, and 64 in 2003).
147 See PROP. 2005/06:124, supra note 36, at 27; SOU 2004:81, supra note 5, at 4.
148 ETT STEG MOT ETT ENKLARE OCH SNABBARE SKULDSANERINGSFÖRFARANDE, SOU 2004:81, supra note 5 at 4.
149 It is not clear that the authors intended this double meaning, but I am inclined to give them credit for it in light of
their somewhat peculiar choice of words in the title and the particular language of the law.
laborious three-step process described above.150 On February 23, 2006, the government finally
submitted to the Riksdag a proposal for a new Debt Adjustment Law, adopting most of the
official investigator’s suggestions.151 The Riksdag adopted the proposal by a vote of 176 to 72
on May 19, 2006.152
The details, language, and even the name of the “new” law are largely identical to the
original 1994 law, but the structure of the system will change fundamentally on January 1,
2007.153 The participation of credit counselors and courts in the first and third steps of the
current system will be eliminated, leaving only the core debt adjustment process controlled
entirely by the KFM. Though debtors will still be able to seek budget- and debt-counseling from
their local counseling services, debtors will no longer have to seek a consensual arrangement
with creditors before applying for formal relief. The KFM will now have the power to impose
final, binding payment plans on dissenting creditors, as well as to modify or dismiss plans
already underway. The courts will operate only as a backstop, taking appeals from debtors and
creditors dissatisfied with the KFM’s orders.
1. Out With Step One As a Time-Consuming Waste of Effort
Calls for eliminating the Step-One informal workout requirement as a fruitless waste of
time arose early on.154 The primary complaint was that this stage imposed often significant
delays on debtors in need of swift relief. Waiting periods in Step One varied widely from
locality to locality, usually 2-4 weeks to get a meeting with a counselor, but in some localities as
long as 9 months,155 followed by 10-17 weeks to draw up a consensual workout plan, and 7-10
more weeks waiting for creditors to register their consent or objection, for an average total time
150 The report contains a summary in English of its main points. See SOU 2004:81, supra note 5, at 27-31.
151 See PROP. 2005/06:124, supra note 36.
152 The 176 members who voted for the new law represent a bare majority--50.43%--of the 349 total members of the
Riksdag, see RIKSDAGENS UTSKOTTSBETÄNKANDEN OCH BESLUT , http://www.regeringen.se/sb/d/1522/a/13507,
though 101 members were absent the day on which the vote was taken. The record of the brief legislative debate
and voting on the new Skuldsaneringslag is available on the Riksdag’s website. See KAMMARENS PROTOKOLL,
RIKSDAGENS PROTOKOLL, 2005/06:126, §§ 11, 13 (May 18, 2006); 2005/06:127 § 13 (May 19, 2006), online at
http://www.riksdagen.se/webbnav/index.aspx?nid=101&beet=2005/06:126. The vote on the proposition was split
perfectly down left-right party lines, with all present Social Democrats, People’s Party and Left Party members, and
Greens supporting the new law, and all present Moderates, Christian Democrats, and Centrists favoring alternative
proposals that would have left the system largely unchanged. See id. 2005/06:127 § 13.
153 See, e.g., JUSTITIEDEPARTEMENTET, FAKTABLAD no. Ju 06.12, EN NY SKULDSANERINGSLAG (May 2006), online
154 See SOU 2004:81, supra note 5, at 69 (describing the Consumer Service’s 1996 evaluation of the law, observing
that creditors almost always refused informal voluntary arrangement proposals, and they lacked any enthusiasm to
respond to requests timely); id. at 79 (reporting on the Tax and Consumer Services’ joint proposal in 2002 to
eliminate the first step in cases where the debtor had little to offer creditors).
155 In Stockholm in 2003, the average waiting period just to get an appointment with a counselor was 2.5 months.
See MARIE RÅBY & GUNHILD WASSTORP VILLARREAL, BUDGET- OCH SKULDRÅDGIVNING I STOCKHOLMS STAD
2003, at 2 (2004), online at http://www.insyn.stockholm.se/sot/document/2004-12-16/Protokoll/15/15_bilaga.pdf.
in Step One of about 7 months.156 In contrast, the KFMs generally completed all of Step Two
within 4-6 months.157
The long processing period in Step One might have been tolerable if this labor-
intensive process achieved a positive result, but it seldom did. In most cases, debtors had very
little or nothing to offer creditors, making the negotiation of a consensual write-down of debt
exceedingly difficult.158 At least in cases where debtors could offer little or nothing beyond the
exemption, even many budget- and debt-counselors urged the elimination of the repetition of
labor and fruitless extension of time between Steps One and Two.159 Even many creditor
representatives considered the first step “nearly meaningless.”160 The official state investigator
concluded that this first stage “thus fills no real function, but instead delays evaluation for
debtors who otherwise fulfill the law’s requirement for receiving a debt adjustment.”161
Budget- and debt-counselors objected to the elimination of Step One, remarking that
many debtors were not “ready” for a formal debt adjustment until after the counselors had helped
them to gain control over their overall financial situation. 162 Likewise, some politicians insisted
that debtors should be forced to go through the motions of Step One to ensure personal
responsibility and avoid depressing payment morality, undermining the sanctity of contracts, and
increasing the cost of credit for all.163 At the end of the day, though, the legislature’s original
intention had been not that debtors should receive obligatory advice on their hopeless financial
situation before filing, but rather that they should engage personal initiative to work something
out themselves to avoid bankruptcy if they could.164 Both facets of this intention had failed.
Most debtors had neither been able to work something out nor to do it themselves (without the
aid of counselors).165
Policymakers clearly acknowledged the continuing need for and value of consumer
budget- and debt-counseling, but they emphasized that counselors should be allowed to focus
their attention and resources on cases in which a workout is a strong possibility, rather than
156 See SOU 2004:81, supra note 5, at 158.
157 See SOU 2004:81, supra note 5, at 161 & tbls. 6.4 and 6.5. Cases are either opened or rejected (and the
automatic stay enters) generally within 6 weeks of filing; the KFM’s claims evaluation, plan development, and
collection of creditors votes occupy the remainder of this period See id. at 162-63.
158 See SOU 2004:81, supra note 5, at 96, 208.
159 See SOU 2004:81, supra note 5, at 104.
160 See SOU 2004:81, supra note 5, at 105-06; RAPPORT 2004:14, supra note 112, at 17 (noting the generally
negative impression of Step One by creditors, based on personal interviews).
161 See SOU 2004:81, supra note 5, at 209.
162 See Anna Björe, Avbetalningsplan hjälper den skuldsatte, DAGENS NYHETER, June 6, 2006, online at
http://www.dn.se/DNet/jsp/polopoly.jsp?a=549872; Anna Lorentzon, Budgetrådgivare skeptiska till snabbare
skuldsanering, DAGENS NYHETER, Aug. 10, 2004, online at http://www.dn.se/DNet/jsp/polopoly.jsp?a=296541;
SOU 2004:81, supra note 5, at 171, 210.
163 See 2005/06:LU35, supra note 128, at 11, 20-21; KAMMARENS PROTOKOLL 2005/06:126, supra note 152, § 11
(remarks of Bertil Kjellberg, Moderate, in Anf. no. 130, noting that “One must take responsibility for one’s dealings,
pure and simple.”); id. at § 13 (remarks of Yvonne Anderson, Christian Democrat, in Anf. nos. 134, 136, Bertil
Kjellberg, Moderate, in Anf. no. 139).
164 See SOU 2004:81, supra note 5, at 108.
165 See 2005/06:LU35, supra note 128, app. 4, at 65 (record of public hearing on SOU 2004:81).
having their resources diluted with hopeless cases.166 Lawmakers concluded that requiring Step
One as a precursor to formal relief was a wasteful formality, out of touch with the pressing
reality of these debtors’ overwhelming debt burden.167 In particular, legislators objected to
having debt counselors review debtors’ financial situations and exempt income only to have the
KFM repeat this evaluation in the formal system, which served only to delay relief and extend
the processing time for cases.168 For the few debtors with significant repayment capacity, failure
to seek a consensual arrangement might lead to rejection of a formal debt adjustment petition,169
but Step One will be eliminated as a universal mandatory entry requirement.
2. Out With Step Three As a Pointless Formality
Also from the very earliest days of the system, courts complained of wasting time and
resources on cases where creditors had no valid basis for objection, which was quite common, or
where only one creditor objected to the detriment of all parties.170 In one reported case, for
example, the court remarked that a commercial bank had objected to the KFM’s plan on the basis
that “the bank is opposed to debt adjustment in principle.”171 In another case, the KFM-proposed
plan offered a 58% dividend to creditors, but one creditor (a cable television provider) objected
generally to offering relief, forcing the case all the way to the Supreme Court.172 After some
courts began requiring creditors to state the basis for their objections in writing, creditors often
abandoned their opposition and accepted the KFM’s proposed plan.173 In the multitude of cases
like these, investigators suggested that requiring the courts to rubber stamp the KFM plan was
little more than a “pure formality.”174 The Tax and Consumer Services had already
recommended in 2002 allowing the KFM to enter immediately binding plans, removing the
required court “cram-down” in cases in which debtors obviously lacked the capacity to offer
creditors any more.175
In addition to entering immediately binding payment plans, the KFM will now handle
modification petitions, as well, especially since only it has the necessary IT support for formulate
new plans.176 Previously, the courts had to rely on the KFM’s data processing systems in time-
166 See SOU 2004:81, supra note 5, at 212-13; PROP. 2005/06:124, supra note 36, at 30-31, 36-37; 2005/06:LU35,
supra note 128, at 10, 12; KAMMARENS PROTOKOLL 2005/06:126, supra note 152, § 13 (remarks of Christina Nenes,
Social Democrat, in Anf. no. 138).
167 See SOU 2004:81, supra note 5, at 212; PROP. 2005/06:124, supra note 36, at 28-31; 2005/06:LU35, supra note
128, at 9.
168 See SOU 2004:81, supra note 5, at 172; PROP. 2005/06:124, supra note 36, at 30; KAMMARENS PROTOKOLL
2005/06:126, supra note 152, § 13 (remarks of Christina Nenes, Social Democrat, in Anf. nos. 138, 140).
169 See PROP. 2005/06:124, supra note 36, at 31. Recall that the debtor’s general efforts to fulfill his or her
obligations is one of the “reasonableness prerequisites” that stand as entry controls to the formal system. See supra
note 78 and accompanying text. The government’s proposition leaves open the question of when a petition might be
rejected on these grounds. Presumably the new, unified KFM system will develop policies for identifying “can pay,
should pay” cases, though nothing requires the KFM to limit the exercise of its discretion in this regard.
170 See SOU 2004:81, supra note 5, at 133, 217; PROP. 2005/06:124, supra note 36, at 32.
171 See NJA 1996:49 s. 324 (HD case no. Ö4037-95), online at http://www.rattsinfosok.dom.se/lagrummet/index.jsp.
172 See NJA 1996:87 s. 548 (HD case no. Ö5483-95), online at http://www.rattsinfosok.dom.se/lagrummet/index.jsp.
173 See SOU 2004:81, supra note 5, at 133.
174 See SOU 2004:81, supra note 5, at 209.
175 See SOU 2004:81, supra note 5, at 216.
176 See PROP. 2005/06:124, supra note 36, at 34-35.
consuming and labor-intensive modification cases, as the courts were not technologically
equipped to draw up modified payment plans.177
Concerns about insufficient consideration of creditor rights by the overly “debtor-
friendly” KFM were swiftly rejected in light of the KFM’s 90-95% record of success in the
district courts.178 Concerns about the European Convention179 were satisfied with the ability of
creditors to access the court system through an appeal of both fact and law.180 At the end of the
day, creditors can still challenge the KFM’s decisions, but they must initiate an appeal and state a
sound legal basis for such challenges. The law allows plenty of leeway for such challenges,
particularly the loose “reasonableness prerequisites,”181 so one wonders how much this will
really reduce the court burden. On the other hand, from the debtor’s perspective, plans will go
into effect immediately, with no delay for purely dilatory refusals to accept the KFM’s plan.
II. New Insights on the 2005 U.S. Reform from the Swedish Perspective—Learning From
the Mistakes and Successes of Others
We in the United States are not blazing a new trail with our most recent significant
restructuring of consumer bankruptcy. The reforms that our system incorporated in October
2005 have in many respects been tried and tested in other, similarly situated countries, including
Sweden.182 While many aspects of the Swedish economy and society differ substantially from
our own, we can learn from the way in which those differences are reflected in the operation of
an otherwise very similar consumer debt relief system.
In particular, given how the Swedish system is moving forward after a decade of
experience, should we in the United States expect to see similar post-reform movements in the
years to come? Are we setting ourselves up to spin our wheels for 10 years, only to take the path
that Sweden has already shown us? Should we not learn from the mistakes and successes of
others and get a jump on a more efficient and productive future? This Part first examines the
comparative contexts of the two most significant changes in the Swedish reform—elimination of
Step One counseling and negotiation with creditors and Step Three court imposition of the KFM-
developed plans—and suggests that history might repeat itself in the United States, at least in
In addition, this Part explores two other comparative issues, focusing on what U.S.
observers can learn from similarities and differences in the pre- and post-reform system in
Sweden. First, a comparative evaluation of the budgeting and payment plan process in Sweden
177 See SOU 2004:81, supra note 5, at 133, 141.
178 See SOU 2004:81, supra note 5, at 221; KAMMARENS PROTOKOLL 2005/06:126, supra note 152, § 13 (remarks of
Christina Nenes, Social Democrat, in Anf. nos. 138, 142).
179 See supra note 128 and accompanying text.
180 See SOU 2004:81, supra note 5, at 218-19, 222-23; 2005/06:LU35, supra note 128, at 13. This solution is a
mirror image of the U.S. conclusions of the debate about the Article III status of Bankruptcy Judges in the 1970s and
early 1980s. See infra notes 228-30 and accompanying text. Indeed, a special investigation is underway in Sweden
to examine the appropriateness of assigning to administrative agencies more and more other kinds of cases now
handled by courts. See PROP. 2005/06:124, supra note 36, at 32.
181 See supra Part I.B.2.
182 See also, e.g., Kilborn, Dutch Law, supra note 2 (observing the striking similarities between the reformed U.S.
law and the original Dutch law).
reveals that excess disposable income in Sweden likely rests on foundations lacking in the
United States. This suggests that the likelihood of a substantial increase in payment plans under
the new U.S. regime are slim at best. Second, the upward trend in consumer debt adjustment
filings in Sweden offers one more challenge to the notion that the rise in U.S. filings in recent
years was attributable to convenience filers seeking an easy way out. Even when the general
economy is strong, Swedish experience reminds us that casualties are to be expected in the brave
new world of open and often risky consumer credit.
A. Out With the New: Credit Counseling Is Even Less Supported—and Less
Meaningful—In the United States
As of October 17, 2005, all consumers in the U.S. now must seek counseling from an
approved non-profit budget and credit counseling agency before filing a bankruptcy petition, in
much the same way that Swedish consumers originally had to seek help from counselors to make
one last attempt at a workout with their creditors.183 The results of this ill-fated “Step One” are
destined to be no better—and likely much worse—in the United States than even in Sweden.
Accordingly, one would hope that the United States would follow Sweden’s lead in scrapping
the requirement of pre-bankruptcy resort to credit counselors. As in Sweden, U.S. consumers
will continue to take advantage of the useful services of credit counselors, as they have in the
past, but for those who self select into the bankruptcy track, the costs and delays of pre-
bankruptcy counseling are just as pointless in the United States as in Sweden.
While the delays of pre-bankruptcy credit counseling have not yet been as severe in the
United States as in Sweden, problems of funding and result are even more acute here. First,
while Swedish municipalities invest nearly 200 million crowns—about $25 million—in budget-
and debt-counseling services each year,184 the U.S. states and federal government offer little if
any support for credit counseling.185 The mandated pre-bankruptcy credit counseling is thus an
unfunded mandate,186 burdening consumers with an extra administrative cost and saddling
counseling agencies with larger caseloads that are already stretching their resources too thin.
Already only a few months after adoption of the new law, U.S. counseling agencies
began to complain of losing millions of dollars to mandatory cost-controlled pre-bankruptcy
counseling.187 In a survey of 106 of its members, representing 70% of all non-profit counselors
183 See 11 U.S.C. § 109(h)(1); see also Federal Trade Commission, Before You File for Personal Bankruptcy:
Information About Credit Counseling and Debtor Education, FTC FACTS FOR CONSUMERS (May 2006), online at
184 See SOU 2004:81, supra note 5, at 250 & tbl. 13.1.
185 A roundtable of private creditor interests, the Council on Consumer Finance, had pledged $10 million in support
for the counseling industry, but only 60% of that money had been advanced within the first 6 months of the new law,
and the council was already planning to disband. See NATIONAL FOUNDATION FOR CREDIT COUNSELING, MEETING
THE MANDATE: CONSUMER COUNSELING AND EDUCATION UNDER THE BANKRUPTCY ABUSE PREVENTION AND
CONSUMER PROTECTION ACT (BAPCPA) (Apr. 19, 2006) 7, 15 [hereinafter, NFCC REPORT ], online at
186 See NFCC REPORT , supra note 185, at 7 (quoting NFCC President and CEO Susan C. Keating as describing the
situation as “a large unfunded mandate”).
187 See NFCC REPORT , supra note 185, at 13-14; Brigitte Yulle, Study: A funding gap in bankruptcy counseling,
BANKRATE.COM, May 23, 2006, online at http://www.bankrate.com/brm/news/bankruptcy/20060523a2.asp.
approved to do pre-bankruptcy counseling,188 the National Foundation for Credit Counseling
reported that the average cost to agencies to offer the required counseling is $50.96 per session,
while the average fee collected from consumer debtors is only $37.71, taking into account the
legal requirements that counseling be offered for a “reasonable fee” and that fees be waived189
for debtors who can’t afford to pay.190 The NFCC expects filings to rise to their pre-reform level
in the near future, which the NFCC fears would cause a nearly $12 million budget shortfall for
2006.191 Moreover, telephone service is less costly than face-to-face, and internet is the least
costly, so some counseling agencies have already had to eliminate face-to-face services in favor
of less effective impersonal internet services just to cut costs.192 The NFCC fears that many
more agencies will have to do away with face-to-face counseling, as well as other financial
literacy and counseling initiatives, as the mandated pre-bankruptcy counseling burden grows.193
This is already having the effect of leaving cases that could have had a chance at an out-of-court
workout without the support they need.194 If anyone had a chance to get one-on-one counseling
and support for an out-of-court workout before, that support has been stretched to the breaking
point now. Sweden scrapped “Step One” in large part to avoid diluting the resources available to
debtors who might have a chance to work something out without bankruptcy.195 We in the
United States have just created the very problem that Sweden acted to avoid.
Second, compounding these funding and resource allocation problems, the result of the
pre-bankruptcy counseling process is just as disappointing in the United States as in Sweden.
The NFCC study reports that only about 3% of recent pre-bankruptcy counseling clients could be
188 See NFCC REPORT , supra note 185, at 10.
189 The number of debtors unable to pay the standard $50 fee for counseling may be even higher than these data
suggest, as consumer advocates discovered in an early study that many counselors were not disclosing to consumer
debtors that the counseling fee could be waived, which might have dissuaded those debtors from seeking counseling
altogether. See Memorandum from Travis Plunkett et al. to Steven Dillingham & Mark Neal re Pre-bankruptcy
Credit Counseling—Fees (Nov. 4, 2005), online at
190 See NFCC REPORT , supra note 185, at 13-14; see also Melissa Allison & Emily Heffter, Law puts debt agencies
in a bind, THE SEATTLE TIMES (Apr. 2, 2006), online at http://archives.seattletimes.nwsource.com/cgi-
that agencies receive most revenue from debt management plans and lose money on pre-bankruptcy counseling).
191 See NFCC REPORT , supra note 185, at 14.
192 See id. at 13. Already, the NFCC has observed a trend away from face-to-face counseling, as 61% of counseling
was conducted by telephone, and just over a quarter of all counseling occurred over the internet, leaving only 13% in
face-to-face sessions. NFCC REPORT