Greece launches new out-of-court debt settlement mechanism

The measure concerns debtors with outstanding obligations to the State (tax authorities and EFKA), banks, and loan servicing companies, who will now be able to settle their total debts exceeding €5,000, compared with the previous threshold of €10,000.

It is estimated that this improvement could potentially allow an additional 1 million debtors to restructure their debts under the favourable terms of the new out-of-court mechanism. In practice, the reduction of the eligibility threshold provides significant relief for small debtors, enabling them to settle their obligations through a large number of equal monthly instalments, with a minimum payment of €50.

Up to 240 instalments for debts to tax authorities and EFKA

The new out-of-court mechanism allows debts owed to the tax authorities and EFKA to be settled in up to 240 instalments, while debts owed to banks and loan servicers can be repaid in up to 420 instalments. The entire process is conducted electronically, with debtors required to provide detailed information regarding their income, assets, and financial obligations. Based on calculations carried out by the mechanism, a restructuring proposal is generated, determining the amount and number of instalments.

Under certain conditions, the mechanism may also provide for the write-off of part of the principal debt if this is deemed necessary to ensure the long-term viability of the repayment plan. In other words, the debtor’s income, assets, and overall financial capacity are assessed in order to determine whether a debt reduction is required. The interest rate applied to the arrangement is fixed at 3% for the entire duration of the repayment period.

Required documentation

During the application process for inclusion in the out-of-court mechanism, debtors are required to submit detailed financial information and the necessary supporting documents. They must also consent to the lifting of tax and banking confidentiality, allowing all creditors to obtain a clear and comprehensive picture of their financial situation.

This constitutes one of the main differences between joining the out-of-court mechanism and entering the 72-instalment repayment arrangement, which was activated last Saturday and has already shown strong interest.

Both arrangements aim to facilitate debt repayment under favourable conditions. Although they concern debtors, there are significant differences between the two schemes. The main distinctions are as follows:

The 72-instalment arrangement applies to debtors with obligations towards the tax authorities and EFKA. The out-of-court mechanism applies to debtors with obligations not only towards the State and social security funds, but also towards banks and loan servicers.

The out-of-court mechanism provides significantly more monthly instalments for debt repayment compared with the 72-instalment scheme. Depending on the debtor’s profile and the type of debt, repayment periods may extend to 240 or 420 instalments.

The out-of-court mechanism may also include a reduction of the principal debt, depending on the debtor’s financial circumstances, whereas such a provision is not included in the 72-instalment arrangement. Under the 72-instalment scheme, debtors know the terms of the arrangement in advance (such as the number of instalments). By contrast, under the out-of-court mechanism, the terms are determined after the debtor’s financial data has been assessed by the mechanism’s algorithm.

The 72-instalment arrangement for tax debts applies to obligations that became overdue by 31 December 2023, had not been settled by 21 April 2026, and remain outstanding until the date of submission of the application. A prerequisite is that debts assessed from 1 January 2024 onwards must have already been either repaid or included in the standard fixed repayment arrangement.