As a Vulnerable Debtor, you can obtain a loan arrangement with write-off.
The problem
The procedure of the Extrajudicial Mechanism under Law no. 4738/2020, has proved to be a lifesaver for thousands of debtors as official data show that the successful arrangements have exceeded 20,000 and concern debts of more than 7.5 billion euros. One question, of course, is to know which of them are still being respected (!)
The debts to the State and the Social Security funds have the honour, where, apart from the fact that their eligibility reaches 100%, the possibility of adjustment up to 240 instalments is offered, instead of the 24 instalments of the fixed adjustment.
Regarding the approval of loan settlement by banks and servicers through the Out-of-Court Mechanism, at first glance the general picture seems to be satisfactory, but it is interesting to look more closely at the individual approval rates for the month of August.
Source: Progress Report on the Extra-Judicial Mechanism - August 2024/Ministry of Economic Affairs & Finance Finance
The table above shows the approval rates by bank & servicer, with the highest being Veraltis and Qquant with 93% and 97% respectively and the lowest being Agricultural Bank Under Special Liquidation, with 15%.
But what does the practice show?
Practice shows (although there are no official statistics) that eligibility and write-off are linked to the type of loan.
More specifically, when a borrower has credit card debts or consumer loans (i.e. unsecured loans), the approval rate is high and usually results in a write-off. The reason is that it is in the bank’s or servicer’s interest to have an even truncated long-term arrangement that the law’s algorithm will “get”, rather than “chasing” the borrower in the courtrooms with dubious results and with the burden of court costs.
On the other hand, when the loans concern mortgages or business loans secured by real estate, it is often in the bank’s or servicer’s interest to take legal action to “put these properties up for auction” and collect their money faster than to commit to a multi-year arrangement of the kind that the law’s algorithm usually “outputs” (average duration of the arrangement: 18 years).
So, based on the above reasoning, it is no coincidence that servicers Qquant and Veraltis have approval rates of over 90%, as the portfolios they manage are mainly credit cards, consumer loans and unsecured business loans.
On the flip side, the low approval rate of 15% for the Rural in Liquidation is also not accidental, as due to politics, it cannot accept arrangements of more than 10 years duration, resulting in the rejection of most of the algorithm’s arrangement proposals, which on average are of more than 18 years duration.
Therefore, the possibility of settling bank debts through the Out-of-Court Mechanism procedure has to do with the type of loan to be settled.
For example, in a loan secured by the borrower’s property, whose commercial value covers or exceeds the balance of the loan, then the bank or the servicer will probably not accept the proposal resulting from the algorithm of the out-of-court platform that will bind the borrower to a multi-year arrangement, but will prefer to “put” this property to auction in order to collect the claim more quickly.
Is there a solution?
The possibility for Banks – Servicers to “refuse” the settlement proposal resulting from the platform’s algorithm, citing some specific reasons, has not changed. However, a small “loophole” in favour of borrowers seems to have been created and may work in practice through the Vulnerable Debtor status.
What is a Vulnerable Debtor?
A vulnerable debtor is a natural person who meets certain income and asset criteria, as follows:
Income criteria
– The total income for a single person household cannot exceed €7,000, plus €3,500 for each household member.
- The total income cannot exceed €21,000 per year, regardless of household composition.
Property criteria
– Real estate: The total taxable value of the household’s immovable property under ENFIA may not exceed a total of EUR 120,000 for a single person household, plus EUR 15,000 for each additional household member, up to a maximum of EUR 180,000.
– Asset presumption: The following are defined as the deposit limits for each type of household:
– Single person household: €7,000
– Household consisting of two members: €10,500
– Household consisting of three members: €14,000
– Household consisting of four members: €17,500
– Household with 5 or more members: 21.000 euro
If the natural person meets the criteria of a vulnerable person, then he/she can apply for a 3-month certificate of vulnerability to be used in the application of the Out-of-Court Mechanism.
Mandatory acceptance of the algorithm proposal by the bank and the servicer
Vulnerable debtor status obliges the bank or servicer to accept the proposal generated by the algorithm. Specifically, we mean the “Creditors’ Counterproposal” which is the alternative proposal produced by the algorithm that is slightly “worse” (usually in terms of the amount of the write-off) than the algorithm’s main proposal called the “Calculator’s Proposal”.
However, if it is considered that the borrower has been wrongly granted vulnerable borrower status, the bank or servicer can take legal action to challenge it, but will also be liable for the costs of the court. What this means in practice is that the lender is obliged to accept the algorithm’s proposal unless it finds some tangible evidence that the borrower was wrongly given vulnerable status and it is worth the creditor’s while to pursue the legal route.
The “mandatory” acceptance of the settlement offer by the bank or the servicer is an important help offered by the status of Vulnerable Debtor, especially in cases where the borrower risks “losing” his/her main or secondary residence, just because it is of sufficient commercial value and it is in the financial institution’s interest to “put it up for auction”, instead of offering the borrower a long-term settlement.
Disclaimer: This article is not intended to provide advice on debt settlement, as the advisory process requires in-depth study and analysis of the facts of each case.
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