Économie et Statistique n° 443 Household overindebtedness commissions - French school drop-outs today: characteristics, life histories, and outcomes - Ailing businesses: how the courts strike a balance between preserving jobs and settling liabilities
Household overindebtedness commissions: shifting the goal from negotiation to preventing relapses
The 1990 Neiertz Act established “overindebtendess commissions” in charge of collective proceedings for restructuring the debt of French households unable to meet their obligations. The initial goal was to negotiate amicable settlements between households and their creditors. To cope with the growing number of households concerned, lawmakers tasked the commissions-implicitly or not-with reducing the volume of initial and “repeat” applications for help. We assess the determinants of the outcomes of applications reviewed between 2007 and 2009: inadmissibility, amicable settlement, or court-ordered solutions. We then seek the factors responsible for relapses into overindebtedness among households assisted by the commissions in 2007. Low income, high current expenses, and heavy debt are detrimental to negotiation. Coordination issues also play a role: an abundance of creditors and high debt dispersion make a settlement less likely. The outcome is also influenced by local economic conditions, the strictness of the commissions, and the identity of creditors. However, the commissions do manage to arrive at negotiated solutions for overindebted households with the most precarious employment statuses. Over a two-year period, approximately one in four overindebted households that have been ordered to repay part of their debt relapse. The main explanatory factor is the household's initial situation, i.e., at the time it files its case with the commission. According to our estimates, one in three overindebted households that have been granted a moratorium relapse into debt; among households to whom the commissions recommended repayment plans, the proportion is slightly over one in ten. We conclude that the commissions reject applications from households that would have been unlikely to relapse. By contrast, they are more lenient towards households at greatest risk, by recommending debt forgiveness or a moratorium.