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This paper measures the stigma attached to public court-supervised bankruptcy filing in France. The procedure (known as a Redressement Judiciaire, or RJ) is widely-used in France, but only around 25% of firms succeed in renegotiating their debt. In 2006, a new bankruptcy procedure called Sauvegarde was introduced in French Commercial Law, for which only firms that are not (yet) insolvent can file: over 60% of these firms succeed in renegotiating their debt under this procedure. A Court can decide to convert a Sauvegarde case into an RJ if it considers that the firm is already insolvent or on the verge of insolvency. Courts differ in their view of the financial situations that trigger conversion. Using Court-conversion rates as an instrument, we measure the impact of this conversion on debt restructuring. We estimate that 36% of firms filing for Sauvegarde are at the margin of RJ conversion. For these marginal firms, conversion significantly reduces the chance of debt restructuring. As the two procedures differ only little except in name, one possible interpretation of our results is that the track-record of the RJ is so bad that it puts stigma on firms that significantly reduces their chances of survival.
