Working Paper Series no. 807: Statistical Modelization of Overindebtedness

This paper aims at presenting the main factors playing a role in being an over-indebted household in France. The procedure for over-indebtedness was born towards the end of the 1980s, in a context of strong expansion of consumer credit and lack of supervision of the latter. The goal of this procedure is to provide solutions for households who struggle with their non-professional debts. Since 2010, better supervision of commercial practices by public authorities has made it possible to considerably limit the scale of consumer credit. Today, households affected by over-indebtedness are therefore mainly vulnerable low-income households. In 2019, a study conducted by the Banque de France, for example, highlighted single women with children being over-represented among over-indebted households. Therefore, our goal will be to present a statistical modelling of over-indebtedness in France.

In order to analyze the impact of several factors in being over-indebted, it is necessary to analyze the characteristics of all French households. However, individual household data is not available. An alternative solution is to construct a database of simulated households using aggregate information available on family structure and household income (part 1). The former database is then used to implement a statistical model that makes it possible to quantify the respective impacts of the two factors considered (part 2). Finally, the final part of the study looks at the actual population of over-indebted households and identifies the factors that determine orientation towards personal recovery, which is the solution offered to over-indebted households with the most deteriorated financial situations (part 3).

These analyses show that the standard of living remains the key factor in over-indebtedness (see figure 1). Its impact is all the more important as the initial financial conditions are weak: while an income supplement will have a negligible impact for a well-off household, it would significantly reduce the likelihood for a household with a modest income of being over-indebted. However, family structure also plays a significant role, for equal standards of living: single parents, for example, are most likely to be affected by over-indebtedness, other things being equal.

Personal recovery is the solution offered by the commission to households whose financial conditions are such that no recovery plan can be suggested. This implies the total erasing of the debts owed. Among over-indebted households, those who are oriented by the commission towards this solution are also those whose living conditions are the most deteriorated: unemployed, low-income individuals, single-parent families or single men are the most vulnerable to this situation. Those households also very often have low amounts of debt compared to other over-indebted individuals. As a result, in 2019, only 26.6% of overall debt was owed by those households.