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Introducing and Implementing a Law on Debt Adjustment in Greece at a time of economic crisis Melina Mouzouraki, Dublin

Introducing and Implementing a Law on Debt Adjustment in Greece at a time of economic crisis Melina Mouzouraki, Dublin 2012. Who may apply?. All individuals – except traders Individuals who are permanent insolvent

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Introducing and Implementing a Law on Debt Adjustment in Greece at a time of economic crisis Melina Mouzouraki, Dublin

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  1. Introducing and Implementing a Law on Debt Adjustment in Greece at a time of economic crisis Melina Mouzouraki, Dublin 2012

  2. Who may apply? • All individuals – except traders • Individuals who are permanent insolvent • Individuals who are not in the situation of insolvency on purpose (fraudulently)‏

  3. Which debts? • All kind of debts to credit institutions (due or not due, secured or not secured, professional, mortgage or any other debt)‏ • All debts to any third person EXCEPT • Debts from claims related to wrongful acts • Administrative fines, penal fines • All kind of taxes to the State • Debts related to public insurance

  4. Discharge Period • 48 months after issuance of the judgment • Paying according to income- Rejection I bn case of 4 months delay in payments • No standard budget- Debtor allowed to keep income to cover family basic needs for a living. • Zero payments in cases of unemployment, severe health problems, non-existent income- Periodical review of the situation

  5. EXEMPTION FROM LIQUIDATION OF PRIMARY RESIDENCE • Extra Payment Plan of a duration of up to 20 years. • Pay an amount of debt equal to 85% of the value of the house and exempt the house from liquidation. • Valid from dwellings of a value up to 300.000 euros (varying according to the personal situation of the debtor)‏

  6. PROCEDURE • Extra- judicial debt payment plan • If failed, filing in court of the petition • Second attempt to reach an agreement-within 2 months after filing-Creditors with a debt of 51% of the total debt, and all creditors with secured debt, have to agree. • If failed, hearing. • If petition accepted, payments for 4 years according to judgment. • Debt relief pronounced by the court after execution of 4 years payment plan.

  7. EXAMPLES FROM SPECIFIC CASES • Profession : Retired • Personal status : 65, married, two grown-up children, one, 33, unemployed, living with the parents • Income : 1.273 euros (pension) Spouse no income. • Assets : two cars from 1999 and 2002 • Total debt : 122.345 euros (to 8 banks)‏ • Judgment : To pay 500 euros per month. Keep an income of 773 euros (48 months). Total of 24.000 euros. Relief from the rest.

  8. Costs • No fee to pay when filing • No judicial cost to pay, even in case of rejection of the petction • Representation in court by a lawyer not compulsory • But- in practice considerable fees for legal counselling and case specific costs

  9. Retired, Single, 62 Income : 968 euros Total debt : 135.000 euros (to 6 banks)‏ Dwelling : An apartment of 52 s.m.(1981). Estimated value by the court :73.000 euros. To pay 400 euros per month to all creditors, evenly distributed, for 48 months. To pay for another 15 years (180 instalments), the sum of 62.050 euros (85% of the value of the house) Period of “grace” Example of a debtor with a dwelling

  10. Evaluation of the law • 1. An important tool to tackle over-indebtedness • 2. Raised bilateral debt adjustment plansBetter plans, more suitable to the real payment capacity of the debtors • 3. Beneficial to credit institutions, too, as it prevents from an horizontal haircut and focuses on case-specific circumstances. • Protection of the dwelling

  11. What should the debtor include in the petition? • All debtor's assets • All kind of income of the debtor • All kind of income of his/her spouse • All creditors and all their claims broken down by principal, interest and costs. • A debt settlement plan.

  12. Statistical Data • 12.000 extra-judicial payment plan proposals • 7.800 petitions filed within 2011 • More than 1000 judgments issued • 60% of petitions accepted • 40% of petitions rejected, but mostly on procedural reasons • 60% of petitions filed by debtors who asked the exemption of their dwelling from liquidation

  13. The way forward • Need for professional independent debt counselling • Need for licensing and supervision of these professionals • Need to provide free debt and legal advice and representation in court • Need to ameliorate infrastructure in courts • Need to sensitize and train law practitioners and judges • Need to monitor enforcement of the law, defend it and amend, when necessary

  14. Evaluation of the law • An important tool to tackle over-indebtedness • Positive effect also to other debtors : better suited adjustment plans proposed by the banks • Beneficial to the credit institutions : law orientated to a case-specific debt relief and not to an horizontal haircut. • Protection of the debtor' s dwelling.

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