Households Debt Restructuring: Evidence from the French Experience

H. Fraisse and P. Frout
Authors registered in the RePEc Author Service: Philippe Froute

Working papers from Banque de France

Abstract: France has a long and unique experience of public intervention in household debt restructuring. When facing financial distress, households can file a case to a households over-indebtedness commission (HOC). These HOCs either grant a delay of payment or impose a partial reimbursement of the secured or unsecured debt. This paper evaluates the ex post impact of this decision on the creditors recovery rate, the household s re-default rate and the net benefit of the treatment, defined as the amount recovered by the creditors minus the public cost of treatment of the file. The random allocation of the households over file managers with different pro-household friendlinesses is used to correct for endogeneity. Sixty percent of households are ordered to repay part of their debt. Over a two-year horizon, the possibility to grant a delay of payment decreases the average redefault rate and the average repayment rate respectively from 13 to 7 percentage points and from 14 to 12 percentage points. The net benefit over a small fraction of low distressed households offsets the loss observed over a large fraction of more distressed households. Our results highlight a substantial impact of the severity of the case manager.

Keywords: Bankruptcy; Household Finance; Default; Debt Restructuring; Loan modification. (search for similar items in EconPapers)
JEL-codes: D1 G2 K35 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:404

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