Labour-market consequences of personal debt restructuring: No Pain, No Gain? Arbeidsmarktconsequenties van de Wet schuldsanering natuurlijke personen

Personal insolvency programmes require effective management of debtor-creditor
incentives to ensure a balanced solution for insolvency. To date, literature is mixed regarding how to incentivise debtors such that the moral hazard to build debts and frequently apply for personal insolvency is minimised. The legal Dutch debt restructuring programme (WSNP ) enables natural person debtors to attain debt forgiveness after maximal efforts to repay debts and wage garnishments for 3-4 years. If the debtor does not make significant efforts to repay debts, the court case can be reassigned to bankruptcy, without possibility for debt forgiveness; the creditor-debtor accountabil- ity balance hinges on the idea that debtors are sufficiently incentivised by this bankruptcy threat. We examine whether debtors respond to the financial incentives within the debt restructuring programme. Additionally, we consider which debtors in particular respond. We have a unique monthly level panel using Dutch court case information from Rechtbank Rotterdam (2011-2016) and linked demographic characteristics from Statistics Netherlands (2010-2018). We carry out an empirical difference in difference analysis, as well as considering heterogeneous effects. Our results are twofold. First, we find that debtors respond to the financial threat of bankruptcy, as well as respond persistently over time. Notably, debtors respond by finding employment. Second, we find that debtors do not all respond to debt restructuring in the same fashion; male debtors are persistently more responsive than their female counterparts with respect to finding employment.