From the beginning, the German parliament was quite conscious of the need to enhance debtors’ flagging motivation to reach a distant benefit.  It therefore instituted so-called “motivation rebates” in the years preceding the final discharge benefit, offering debtors a “bonus” of 10% of their nonexempt income at the end of the fourth year, 15% at the end of the fifth year, and 20% at the end of the sixth year.   Quite insightfully, these motivation rebates offset the hyperbolic discount that debtors would apply to the seventh year delayed benefit. 

In addition, in 2001 the German parliament ultimately acceded to demands to reduce the total delay between filing and relief.  As of January 2002, German debtors are forced to wait (and to cede nonexempt income) for only six years, and that period begins at an earlier stage to avoid a longer wait.   It is impossible to gauge the psychological effects of these motivation rebates or the reduction of the payment plan period, but these are yet further aspects of the German system that seem to respond positively to pitfalls identified by the insights of behavioral economics (again, most likely without explicitly taking into account behavioral economics).

2.  France

Once again, the French system seems to be evolving hesitantly in a direction consistent with behavioral economics.  A recent limitation on the length of out-of-court plans—the cornerstone of the French system, the end result of approximately 70% of all cases —appears to address the problem of hyperbolic discounting.  This revision does not, however, address the “real” problem.  Before February 2004, out-of-court plans sometimes stretched fifteen years into the future.  Now, out-of-court plans are limited to ten years in duration.   Even ten years is an extremely long time, leading to an extremely powerful potential for hyperbolic discounting.  But the problem with these plans is not hyperbolic discounting of a delayed benefit.  Few of these plans offer a discharge at the end of the plan in any event—their benefits, including simple payment extensions and interest rate reductions, are immediate.   The problem with out-of-court plans is not necessarily length, but paltry benefits. 

The French legislature has moved in the opposite direction with respect to court-imposed plans, theoretically exacerbating the hyperbolic discounting problem.  Originally, a court-imposed plan could not exceed five years in duration, but that limit rose to eight years in 1999, and as of 2004, court-imposed plans are subject to the same ten-year limit as out-of-court plans.   Here again, though, hyperbolic discounting is not the major concern.  Like out-of-court plans, court-imposed plans do not delay a substantial benefit, as they cannot forcibly discharge most debts.  

For the most economically troubled debtors, the two most recently developed procedures in the French system offer quick and effective relief, although such relief thus far has been practically available to few debtors.  French debtors can obtain a discharge of debt if one of the “commissions” that administer the system makes one of two recommendations:  First, since 1999, the commission can recommend the “extraordinary” measure of a global delay of payments of up two years, followed by a re-examination of the debtor’s situation and possibly an imposed partial discharge of any remaining debt.   Alternatively, since February 2004, the commission can recommend a U.S.-style “personal recovery” procedure, which discharges all unpaid debts upon liquidation of the debtor’s nonexempt assets, if any, after only a few months and requires no dedication of the debtor’s future income to creditors.   These innovations seem to overcome the problem of hyperbolic discounting quite powerfully, bringing the future benefit of discharge quite close to the filing decision and calling for very little immediate countervailing burden on the debtor.