What is the situation?
With punctuality being the number one problem for households and businesses in goods, services and raw materials, hundreds of thousands of debtors are being asked to meet years of accumulated debts to banks and funds, the tax office, the tax office, the National Social Insurance Fund and municipalities.
The numbers are telling.
Almost 4 million taxpayers and 2 million insured have overdue debts exceeding €151 billion.
How are debtors dealing with the situation?
Debtors, be they individuals or businesses, are in a constant struggle to settle their debts by finding temporary solutions, by extending the repayment period or other unsustainable solutions, which will mathematically result in new red loans.
The aim of debtors is to avoid coercive measures such as seizures of bank accounts, auctioning of assets and criminal prosecutions for debts to the state.
However, when the solution is temporary, the problem remains, leading to anxiety and often despair among debtors.
There is a solution – Three regulatory tools
There appear to be three tools available to debtors to achieve a realistic and viable debt settlement:
- The out-of-court mechanism, with debt arrangements up to 420 instalments for banks and funds and up to 240 instalments for debts to the tax office, EFKA or municipalities, with the possibility of a “haircut” on the initial capital.
- The fixed 24 instalment arrangement offered for debts to the tax office and the EFKA. This arrangement is suitable for small amounts of debts, as for large amounts of debts, it usually cannot be complied with.
- The online platform of the “Code of Conduct” enables borrowers who are individuals or small businesses to seek direct arrangement with the bank or loan manager (i.e. Fund) to settle their loans (i.e. bilaterally).
Extrajudicial mechanism
The extrajudicial mechanism is a procedure for out-of-court debt settlement (i.e. out of court) to Banks, Funds, the State, Insurance Funds and Municipalities, which offers regulation up to 420 instalments, with the possibility of “haircuts”.
Since June 2021, when the new out-of-court mechanism procedure was first launched, it seems to have “run its course” with problems, corrections and improvements so that today it is beginning to gain the confidence of debtors to try the procedure, which has now produced some thousands of arrangements for debts to the State, Insurance Funds and Banks or Funds.
In practice, the out-of-court mechanism seems to work extremely well with the State and the insurance funds (bilateral contract) as they are obliged to offer the debtor an arrangement.
On the other hand, Banks and Funds have the possibility to refuse the arrangement and there are many times when they do so. The reason is that many times the arrangement produced by the platform’s algorithm does not favour the Bank or Fund. A typical example is the case of a loan where it is secured by a property of good commercial value. In this case, the Bank will prefer to auction the property to collect the consideration relatively soon (usually 2 to 3 years) instead of accepting the platform’s solution of a 35-year arrangement with no down payment and a low interest rate.
New Improvements
New improvements to the Extra-Judicial Mechanism are coming to improve the outcome of the procedure.
In particular:
- The algorithm (formula) of the platform is changed for loans with collateral in order to increase the “haircut” of the debt for all borrowers. With the new arrangement, the “haircut” is increased by up to 28%, compared to the current regime.
- The interest rate for the arrangements to Banks & Servicers-Funds is set at 3% fixed for 3 years. The current interest rate for overdue loans to Banks & Servicers is Euribor1m +2.5% for secured debts and plus 3% for unsecured debts. As regards debt arrangements to the State and Insurance Funds, the interest rate is already 3% fixed for the duration of the arrangement.
- From now on, the entities – shareholders of companies that have “closed” and owe confirmed debts to the State and the Insurance Funds, can regulate these debts through the procedure of the Extra-Judicial Mechanism.
Fixed instalment scheme
For current and regular debts such as VAT, income tax, ENFIA and insurance contributions, taxpayers can make use of the fixed 24 instalment arrangement with an escalating interest rate depending on the duration of the arrangement. Exceptional debts such as inheritance tax can be paid in up to 48 sharp monthly instalments.
The taxpayer has the possibility to “lose” up to one instalment per 12 months of regulation with a 15% late payment surcharge, while the regulation is lost with 2 late instalments.
Regulation through the “Code of Conduct” platform
The Code of Conduct procedure, which has been “running” since 2014, is now carried out through gov.gr after the activation of the electronic procedure and in accordance with the revised Code of Conduct for Banks of the Hellenic Central Bank.
Borrowers, whether they are natural or legal persons (micro enterprises), can now access the platform in the “Property and Taxation” section and in the “Debt Management” subsection to request directly from Banks and Servicers (Funds) the adjustment of their loans.
The Code of Conduct applies not only to primary debtors but also to co-debtors and guarantors who have entered into loan agreements of more than €1,000 for individuals and €5,000 for micro-enterprises:
- Consumer loans, Mortgage loans & Credit cards
- Loans to sole proprietorships and self-employed persons
- Loans for micro-enterprises (average turnover over the last 3 years should not exceed €1,000,000).
Foreword
Although a cliché, it is true that every situation is unique and not all solutions are for everyone.
The available configuration tools described above are not enough on their own. The choice of the appropriate tool should be based on the elements of each individual case, so that the solution chosen is the most effective.
For this purpose, it is important to choose the right advisor who will have knowledge and experience, will deal with your case and will ensure the best possible outcome.