If a borrower defaults on consumer debt, the creditor can have the debtor’s wages garnished. Sale of assets may be necessary to avoid a debt settlement arrangement. This gives lenders strong protection – also those handsomely compensated for the risk by the high interest rates they charge on unsecured household loans. Creditor protection is intended to induce prudence among borrowers, since they know that the debt will have to be repaid. Paradoxically, this may make it just a little too attractive to promote this kind of credit. Mortgage debt normally entails sound collateral for the lender. Nevertheless, in downturns when property prices fall sharply, such debt may be difficult to manage. If many people try to deleverage at the same time by selling their homes, prices and collateral values will fall. If collateral values fall sharply, it becomes difficult to restructure debt. What is the significance of the housing market? Nearly 90 percent of household debt is mortgaged using property as collateral. And debt growth 4/7  BIS central bankers' speeches  largely tracks house prices. So despite the substantial rise in consumer debt in recent years, the big picture continues to be dominated by mortgage debt. As we invest so heavily in housing – primarily using borrowed money – house prices are a key determinant of our net wealth. It is often said that people in Norway own their homes. Reality is slightly more nuanced. Twentythree percent of Norwegian households rent the home in which they live.
Speedy and efficient liquidation of insolvent companies is crucial for the economy’s overall ability to restructure, innovate and grow. This is closely related to creditor protection. Creditors enjoy high standing in Norwegian legislation. High creditor protection makes it relatively easy for creditors to demand liquidation when the conditions are met. As long as the legal system and administrators in bankruptcy function as intended, the creditors may realise their claims on the estate and resources are freed up for society. It is essential that resources – labour, skills and capital – that are tied up in an unprofitable business are freed up for new activities. This also provides adequate, if painful, adjustment in a crisis. The downturn is shortened, and the economy gets back on its feet faster. Household debt is harder to restructure. Norwegian households can settle debt by liquidating their assets, but this usually only takes place after the borrower dies.4 Before that, the rule is that debt follows you to your grave. Norway has a Debt Settlement Act. Very few would voluntarily petition to enter into a debt settlement arrangement. While some of the debt may be forgiven, such an arrangement involves garnishment of wages, down to the minimum for necessities. Many of those who enter into such an arrangement in Norway struggle with debts incurred while self-employed. Recent years have seen a sharp rise in consumer debt. Defaulting on this sort of debt is much more common than defaulting on a residential mortgage. Default does not mean that lenders forfeit their money.