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Households Debt Restructuring: The Re-default Effect of a Debt Suspension

Author

Listed:
  • Fraisse, Henri

    () (Bank of France)

Abstract

When facing financial distress, French households can file a case to a "households' over-indebtedness commission" (HDC). The HDC can order an immediate repayment or grant a debt suspension. Exploiting the random assignment of bankruptcy filings to managers, we show that a debt suspension has a very significant and negative effect on the likelihood to re-default but that this impact is only short-lived. The effect depends not only on the characteristics of the households but also on the nature of their indebtedness. Our results imply that rather than focusing on a specific debt profile, above all a deeper restructuring of the expenditure side is necessary to make the plan sustainable. They also single out specific banks lending to particular fragile households. They indicate the importance of policy actions on budget counseling, as well as the importance of regulation of credit distribution to avoid both entering into bankruptcy and re-filing for bankruptcy.

Suggested Citation

  • Fraisse, Henri, 2017. "Households Debt Restructuring: The Re-default Effect of a Debt Suspension," IZA Discussion Papers 11032, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11032
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    References listed on IDEAS

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    Cited by:

    1. Aurélien Violon & Dominique Durant & Oana Toader, 2017. "The Impact of the Identification of GSIBs on their Business Model," Débats économiques et financiers 33, Banque de France.
    2. F. Borel-Mathurin & S. Loisel & J. Segers, 2017. "Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views," Débats économiques et financiers 32, Banque de France.
    3. J. Hombert & V. Lyonnet, 2017. "Intergenerational Risk Sharing in Life Insurance: Evidence from France," Débats économiques et financiers 30, Banque de France.

    More about this item

    Keywords

    bankruptcy; household finance; default; debt restructuring;

    JEL classification:

    • D - Microeconomics
    • G2 - Financial Economics - - Financial Institutions and Services
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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