Debt relief of up to 80% is coming – Who is eligible for 240 installments and who for 420?

Opportunity to settle debts to the State, banks, the insurance funds, them Local Authorities, but also third party creditors in up to 240 instalments and subject to conditions for secured loans of natural persons in up to 420 instalments, even with debt haircut up to 80%, have from tomorrow, Tuesday 1 June, businesses, freelancers and natural persons through the out-of-court settlement of debts.

In the process debts that are not yet in arrears will also be eligible, if the debtors have proven difficulties in repaying them and provided that their income has been reduced by at least 20%.

In any case, the condition is these debts exceed EUR 10,000 and not be attributable to a single operator per 90%, but to at least two creditors.

Who is affected by the new out-of-court settlement

The out-of-court settlement procedure concerns individuals and businesses with an income of 700.000 euros and below and shall be carried out automatically by online platform of the new Bankruptcy Law, through which the relevant regulation is produced, without requiring the involvement of a human factor and/or the approval of any executive of the State and the Social Security Institutions, in accordance with what the Law already stipulates.

The financial institutions can then submit a proposal for a settlement to the debtor. If the proposal secures the consent of the debtor and the required majority of the financing institutions, it is forwarded to the State and the Social Security Institutions, which are invited within a certain period of time to verify that the conditions of the Law are met and, if they are met, their automatic approval is automatically granted.

The main points of the regulation provide for:

1. Basic debt haircut up to 80%

Provided cancellation of debts to the State, banks and loan managers subject to the condition of full repayment of the amount resulting from the debt adjustment.

The most important rules for debt haircuts are:

• have real financial weakness, both the debtor and his co-debtors and guarantors and the commercial value of the property of the debtor, his co-debtors and guarantors is less than the amount of the debt.
• «Cutting» fines, interest and surcharges: The «haircut» to the public sector cannot be greater than 95% the claims of the State from fines imposed by the tax administration, 85% the claims of the State and the Social Security Institutions from interest and surcharges late payment.
• «Haircut» of basic debt: In addition, in the case of bilateral negotiations or in multilateral negotiations when the solution offered by the financial institutions results from the counter-proposal of the creditors, the «haircut» of the principal debt to the State and Social Security institutions cannot be more than 75%. It is noted that the cancellation of basic withholding taxes, taxes imposed on the State and insurance contributions is prohibited by law. Furthermore, in this case the «haircut» to the financing institutions (banks) cannot be more than 80% the claims of the financing institutions (excluding interest on late payments for which there is no limit).

2. Who is entitled to 180, 240 and 420 instalments 

• The maximum number of instalments for the repayment of a debt to the State and Social Security institutions is 240.
• In the event that the solution offered by the financial institutions (banks) results from the counter-proposal of the creditors, it is foreseen maximum limit of 420 instalments for secured loans to natural persons, 240 instalments for unsecured loans natural persons and collateralised loans to legal persons; and 180 instalments for unsecured loans to legal persons.
• For VAT debtors, the financing bodies have provided for the maximum age limit of 85 years, on the basis of which the number of instalments is reduced, unless a guarantor of a lower age is contracted.

3. With an algorithm the instalments - the interest rates

• The debtor cannot choose the number of instalments he wants.
• The instalments shall be by a special algorithm, automatically that evaluates the financial situation of the debtor, income and property.
• The arrangement of debts with the State and Social Security institutions is subject to an interest rate equal to the quarterly euribor rate, increased by 5%, which is calculated annually.
• The debt arrangement with the financial institutions (banks) is subject to an interest rate equal to the quarterly/monthly euribor/libor rate, plus 3,25% for secured debts; and 4,5% for unsecured debts.

4. EUR 50 is the minimum payment

• The minimum monthly instalment amount for the regulation of debts with the State and Social Security Institutions is as follows 50 euros.
• In case the solution offered by the financial institutions results from the counter-proposal of the creditors, a minimum monthly instalment to the financial institutions of EUR 50 per secured loan and EUR 50 per creditor for unsecured loans is foreseen.

5. First home protection is removed

• The new framework provides for subsidies for first home loans, at the stage of global debt adjustment.
• Includes those debtors who have received business loans guaranteed by their first home.
• From 1 June there is no protection of the first residence.

6. First residence rent allowance 70-210 euros is coming

• In view of the start of the auctions, the government is working on first home support plan of households considered to be economically vulnerable.
• The plan provides for subsidy by the State of the mortgage instalment along the lines of the protection that will apply when the real estate acquirer becomes operational.
• The State will in this case support the vulnerable household by granting rent allowance for the first house. The allowance ranges from EUR 70 to EUR 210, depending on the marital status of the household.

7. The minimum obligation of the debtor

• The debtor will have to pay at least the liquidation value of all its assets (regardless of whether this amount is covered by his/her declared income).
• For immovable assets, the liquidation value is determined as the maximum between the taxable value and the market value reduced by 3%, due to the costs of the liquidation process.
• For movable assets, the liquidation value is the same as the market value. This means that if the liquidation value of the debtor's property exceeds the amount of the debts, then there is no debt cancellation. However, if it falls short, in combination with the other parameters set by the law, the debt is cancelled.

8. Who is excluded

• If the debtor owes only one bank or creditor cannot be included in the mechanism. However, if you owe money to 2 creditors then you can be subject to the out-of-court settlement procedure.

9. Suspension of enforcement measures

• From the lodging of the dossier until the adoption of the decision, it shall be automatic suspension of individual and collective enforcement measures claims that have «accrued» up to the date of the decision.
• It is therefore possible to file/adjudicate lawsuits or simply serve a payment order.
• Suspension of possibility applies taking injunctive measures (seizure, attachment, mortgaging, removal or removal of movable property of the business), prohibition to dispose of the debtor's property and equipment of the debtor's business
• Suspension of time limits and limitation periods for creditors' claims, as well as for the rights of guarantors and co-debtors. Such suspension shall does not include the holding of an auction scheduled within 3 months from the date of submission of the application by the debtor, as well as any procedural action preparatory to the auction by a creditor with a letter of credit.

10. Lifting the privacy of personal data

• The first step is to fill in the application form.
• The interested party accepts lifting the confidentiality of his/her personal data.
• This is followed by the extraction of tax data and the request to send the bank details.
• Contact details are entered and family members are finalised.
• Once all the information has been completed, the application is communicated to all the creditors for verification of the correctness of the information.

11. Application evaluation

• The following is the assessment of the application by funding bodies (banks) by reviewing the proposal by creditors and participating in a vote and producing a voting result.

12. Checking criteria and confirming instalments

• The debtor enters the platform and accepts or rejects the agreement and applies for mediation in the second case.
• The consent of the State is presumed if the criteria are met, followed by a contract with the State with a check of the subsidy criteria and loan instalment confirmation.