Generous haircut for debtors
Reduction of up to 67.5% foreseen for borrowers who opt for out-of-court settlement
An omnibus bill by the Economy and Finance Ministry offers the chance for a debt haircut of up to 67.5% through the out-of-court mechanism. This bill, among other things, improves the regulatory conditions and expands the protection framework for vulnerable borrowers.
The goal, according to Minister Kostis Hatzidakis, “is to take the next step in the direction of dealing with the overdue private debt that still exists in the economy, raising obstacles to the even stronger growth that the country can achieve.”
In particular, with a ministerial decision that will be issued immediately after the ratification of the bill next month, the algorithm from which the amount of the debt writeoff is derived and by extension the amount of the debt that is regulated through the out-of-court settlement for the whole will be changed for debtors who have secured loans. It essentially abolishes the minimum amount of recovery of the unsecured part of a loan covered by collateral and in the hypothetical case that the debtor has no other income, it can lead to a bigger haircut up to 28% compared to the existing regime.
A fixed interest rate of 3% – from euribor + 2.5 points for secured debts and euribor + 3 points for unsecured debts – is established for the arrangements of the extrajudicial mechanism with the aim of protecting borrowers from increased interest rates, and is equated with the corresponding interest rate for the state and social security agencies, which is already 3% stable. The possibility of inclusion in extrajudicial proceedings is extended for persons who inherited debts to the state and insurance funds, which have been ascertained at the expense of businesses that have closed.
Especially for vulnerable borrowers, it is foreseen that the debt restructuring proposal, as derived from the out-of-court algorithm, will be automatically and mandatorily accepted by all creditors. Vulnerable debtors are defined as those with an income of up to 7,000 euros, increased by €3,500 per dependent minor, with a maximum limit of €21,000 and a property value of up to €120,000 euros.
