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Heikki Hiilamo

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Heikki Hiilamo

This chapter outlines normative thinking around debt and its links to religion. It also maps the developments which have led to the fact that over-indebtedness now affects substantial numbers of private households in all economically advanced countries. The simple explanation for this is that credit has become ubiquitous, also described as the “democratization of credit availability”. The focus is on six countries – the United States, the United Kingdom, Germany, the Netherlands, Finland and Norway – representing three different welfare state traditions but all with serious household debt problems. The chapter defines over-indebted persons as those who have defaulted on claims that have been confirmed through the courts and which are collected by creditors. These include claims which can be distrained (seized) without litigation (for example unpaid taxes) or which through administrative regulated processes or otherwise can lead to serious consequences, such as leaving a household with no electricity, heating or water). Finally, credit-based social policy is discussed.

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Heikki Hiilamo

The institution of private property comes with the presumption that the state will guarantee a creditor’s right to collect payment from a debtor. In case of default, the creditor may turn to the courts to get his money back. Despite the wide range of nationally unique features, all debt recovery procedures comply with a simple five-stage model: routine of requests and warnings; court procedures; debt collection actions; entry into the personal insolvency process; and official credit records. This chapter also discusses different types of debts before presenting a model of personal insolvency regimes. Finally, the central features of debt recovery processes in six countries are presented and compared.

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Heikki Hiilamo

The major cases of over-indebtedness relate to structural changes in capitalist economies, namely liberalization of consumer credit markets and economic crises. This chapter covers the developments leading to the liberalization of consumer credit markets in six countries and the context of debt problems before, during and after the Global economic crises. The conceptual framework for studying causes of over-indebtedness is based on individual and structural factors which increase the costs of debts, decrease incomes and increase the cost of living. Each of these categories is discussed with research results and examples from six countries.

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Heikki Hiilamo

Individuals unable to meet their financial commitments have to fight serious deficits under varying institutional conditions, including legal statutes, creditor practices and existing – or non-existing – social security nets. This chapter discusses over-indebtedness as a measure of low socio-economic status (SES) and poverty, before analysing mechanisms linking over-indebtedness and its consequences. The first mechanism is attached to economic constraints caused by over-indebtedness, while the second is connected to the stigma of over-indebtedness. The social stigma concerning indebtedness and debt problems can be analysed, firstly, as an internalized psychological condition relating to the incidence of over-indebtedness and, secondly as a feeling relating to other people’s reactions to an over-indebted person. Both low SES and social stigma are analysed from individual and structural perspective research results and examples from six countries.

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Heikki Hiilamo

Modern societies encompass a number of policies and programmes to prevent over-indebtedness and to alleviate its consequences. To put it simply, reversing the causes of over-indebtedness can help prevent it, while policies to tackle the consequences of debt problems may assist in alleviating them. This chapter focuses on three policy areas to prevent over-indebtedness, namely regulating financial markets, good lending practices and improving financial literacy. With regard to alleviating the consequences of over-indebtedness the chapter discusses swift debt discharge, debt counselling, debt collection practices and, finally, welfare state policies. The main focus of analysis is on swift debt discharge and possibilities to introduce the US model of swift debt discharge in Europe.

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Heikki Hiilamo

An important finding from the comparison of debt problems and policies to regulate them in six countries is that the differences in personal insolvency regimes do not follow the traditional welfare state regime demarcation lines. For over-indebted individuals, the US offers the best possibility for a fresh start. Undoubtedly the swift debt discharge options in the US, even with their deficiencies, compensate for the underdeveloped welfare state programmes in other areas. However, weaknesses of, for example, health care systems and support for students are important causes of over-indebtedness in the US. The social policy approach calls for a method that would integrate different policy areas related to over-indebtedness. That entails coordination between different ministries and government agencies dealing with a wide range of topics, from regulation of financial markets to consumer education.

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Heikki Hiilamo

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Household Debt and Economic Crises

Causes, Consequences and Remedies

Heikki Hiilamo

The trajectories of increasing household debt are studied in the contexts of the US and the UK, Germany, the Netherlands, Finland and Norway. Household Debt and Economic Crises examines remedies to prevent and alleviate the over-indebtedness epidemic, creating a conceptual framework with which to analyse the causes and consequences of debt. Hiilamo argues that social policies are needed to tackle the current borrowing crisis that endangers and prevents the full participation in society of individuals with excessive debts.