Socio-economic framework for the design of national household insolvency systems

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Lessons learned in the aftermath of the Financial Crisis of 2008 include that long, punitive household insolvency regimes have a negative societal impact, increase the potential for financial instability and hamper national economic recovery. We propose the Socio-Economic Framework for Household Insolvency System Design as a regulatory mechanism that aims to control national household debt and productivity levels. The system facilitates an informal resolution of the conflict between over-indebted households and their creditors. When this is not possible, the system grants immediate relief to no-income, no-assets and ‘honest’ households, that experienced over-indebtedness because of an external negative shock, such as a medical emergency. Finally, when the household does not qualify for immediate relief, the system allocates the costs of insolvency between the household and creditors, based on responsibility for the over-indebtedness. This reduces the moral hazard.
Original languageEnglish
Pages (from-to)1473-1499
Number of pages27
JournalSocio-Economic Review
Issue number3
Early online date23 Mar 2023
Publication statusPublished online - 23 Mar 2023

Bibliographical note

Publisher Copyright:
© 2023 The Author(s). Published by Oxford University Press and the Society for the Advancement of Socio-Economics.


  • household debt
  • social policy
  • welfare state
  • financializaton
  • H31 Fiscal Policies and Behavior of Economic Agents: Household
  • K35 Personal Bankruptcy Law
  • I38 Government Policy: Provision and Effects of Welfare Programs


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