Out-of-court: New arrangements, haircut up to 30%, long repayment periods – Examples

Probably by the end of the week, the bill that includes new improvements to the Extrajudicial Court, mainly bigger “haircuts”, will have been submitted to the Parliament.

At the moment, the average haircut for debts to the State is 17.3%, while for debts to banks and funds it rises to 27%. It should be noted that 44% of the arrangements for financial institutions received a haircut of more than 30%, while the total write-off amount exceeds 1 billion euros.

In the individual categories of loans, which have entered the regulation process, in consumer loans the “haircut” reaches 34%, in business loans it stands at 29.60%, while in housing loans it is limited to 13%. As a counterweight to the small “haircut” in mortgages, it seems that the long repayment period works, which on average is 27 years, while in business the horizon reaches 19 years and in consumer loans 14 years.

The scope of debt cancellation, i.e. the “haircut”, is one of the areas where improvements are coming with the Ministry of Finance’s bill. In particular, with a ministerial decision that will be issued immediately after the passing of the bill, the algorithm from which the amount of the debt write-off is derived and by extension the amount of the debt that is regulated through the extrajudicial, for all debtors who have loans, will be changed with collateral and not only the vulnerable. With the changes that are coming, the amount of regulated debt from collateralized loans is reduced by up to 28% compared to the existing situation.

For example, in a debt of 100,000 euros with a mortgage on a property worth 100,000, with the out-of-court settlement today the debtor is required to pay 70,440, i.e. a 29.6% “haircut”. With the new arrangement, he will pay 65,000, that is, his debt is further reduced by 8%. In another case, for a debt of 100,000 euros with a property worth 70,000 euros, today the debt is reduced to 55,308 euros, while with the new regime it falls to 45,500, i.e. 18% less.

The vulnerable

The expansion of the “haircut” is not the only intervention brought by the bill. Big beneficiaries are the vulnerable, who are shielded from the abusive practices of banks and funds. It is indicative that today almost half of the settlement proposals, which are rejected by the servicers, concern the debts of vulnerable households!

Thus, by means of a provision, it will be defined that the debt restructuring proposal of the vulnerable debtors – for whom the relevant certificate has been issued – as results from the application of the out-of-court calculation tool, will be automatically and compulsorily accepted by all creditors.

It is recalled that the calculation tool, i.e. the algorithm, determines the final repayment amount, the amount of the “haircut” and the number of installments, taking into account the debtor’s ability to repay, the value of his property, etc. With the new provision the debtor retains the right to reject this proposal, while creditors can only challenge it in court if they have evidence that parameters of the application are not true (eg if the debtor is not in fact vulnerable) .

Interest rates

At a time when interest rates have hit “red” and no one can put their hand in the fire that we will not have continuity, the “umbrella” of the Extrajudicial is becoming stronger for households and businesses.

Thus, by amending the relevant Ministerial Decision, the interest rate of the arrangements will be set at 3% fixed for 3 years. It is noted that the interest rate for debts to financial institutions today is euribor plus 2.5 points for secured debts and plus 3 points for unsecured debts and now becomes 3% fixed.

At the moment, 10,023 arrangements have been completed, involving debts of 3.7 billion euros. However, this is only the tip of the iceberg. More than 45 thousand applications are pending, which correspond to debts of 23 billion euros. Of these, 59%, i.e. approximately 13.5 billion euros, concern pretentious ones and it is obvious the “breath” that the market can take, as long as these debts are finally settled through the improved Extrajudicial Court.