From a mechanism for reducing debt and instalments, the out-of-court settlement scheme is evolving into a vehicle for saving the family home. From 21 September, a radical change comes into force: debtors who own more than one property will be able to choose to save their main residence by agreeing to the sale of their other real estate.

The trade-off will be, besides saving their home, a new and more favourable calculation basis that offers an even bigger writedown on the total debt and instalment: the algorithm will calculate the settlement based on the value of the home being saved, rather than on the debtor’s entire property portfolio.

This is a substantive change with major practical and symbolic weight. Until now, anyone with a main residence, a small holiday home, a plot of land or a piece of farmland entered the scheme with their entire property portfolio exposed to creditors. The total value of their assets limited the writedown and pushed up the instalment produced by the algorithm. Under the new scheme, the main residence is separated from other properties and becomes the reference point for the new settlement proposal.

Two scenarios on screen

The out-of-court platform will now present debtors with two alternative proposals. The first will be the current one: a settlement based on the debtor’s total assets. The second will be the new scenario for saving the main residence: the settlement will be calculated based on the value of the property the debtor wants to keep and their current income.

Debtors will have the right to accept or reject the proposal. If they accept the second option, saving the home will be contractually tied to the sale of their other properties through electronic auction. The sale, therefore, is not a vague promise to creditors but a term of the restructuring agreement itself.

Take an example: suppose a debtor has debts of 150,000 euros, a main residence worth 100,000 euros, and two plots of land worth 50,000 euros each. Under the current model, the algorithm sees total real estate assets of 200,000 euros. This means the scope for a writedown is limited, because the assets exceed the debt.

Under the new scenario, the debtor asks for their home to be protected. The settlement is calculated based on the 100,000 euro value of the main residence and their actual income capacity. The other properties go to auction, and the proceeds reduce the debt. Provided the value of the home is lower than the total debt owed to lenders, the new proposal can lead to a bigger writeoff and a smaller monthly instalment.

The result is not a free rescue of the home. It is a compromise: the debtor loses their secondary property assets but keeps their home and pays off its value over time, with an instalment adjusted to what they can afford.

Better than the Katseli law?

The comparison with the Katseli law is inevitable: Law 3869/2010 also provided for a judicial procedure for individuals, with the possibility of protecting the main residence under certain conditions and paying instalments in line with the debtor’s financial capacity.

In practice, that protection did not mean the debtor’s assets remained untouched. Additional properties, deposits and other assets were taken into account by the court and could be used to satisfy creditors.

The new out-of-court solution attempts to go a step further: it does not simply offer protection for the main residence, it turns that protection into a clear choice within an out-of-court, digital process. In practice, the order in which properties are sold off is set by the creditors and recorded in the restructuring agreement. The debtor does not choose this. However, the debtor will already have chosen to save their main residence. The other properties will be sold off up to the total value of the claims.

The key difference is speed and predictability. Instead of years of court proceedings, the debtor will know in advance about two scenarios: what they will pay if they keep their entire estate, and what they will pay if they choose to save their home by accepting the sale of the remaining properties.

After this process, creditors are not permitted to expedite enforcement action against the applicant’s main residence, to obtain precautionary measures over it, to register a mortgage on it, or to convert a mortgage pre-notation into a full mortgage. In fact, if the remaining properties cover the debt, the debtor does not lose everything, some may even be left over for them.

A new chance for those who lost out

The second change under consideration, for reasons of equal opportunity, concerns those who had already secured a settlement through the out-of-court mechanism but subsequently lost it. Under the current rules, a debtor who defaulted on their previous agreement finds the door closed to a second application to the scheme: defaulting on a settlement agreement is considered strong evidence that the debtor will be unable to keep up a new one either.

With the new arrangement coming into force in September, a new window for reapplication will open for a limited period, until March 2027, for those who lost an earlier settlement.

The logic is that this is not a repeat of the same proposal. The new option of selling off other properties changes the entire basis of the settlement calculation, and can reduce the debt and make the monthly instalment sustainable. The measure is estimated to potentially affect at least 7,000 debtors who had joined the scheme but later lost their settlement after falling behind on instalments.

For these debtors, the out-of-court mechanism will not simply be a second application. It will be a different plan: less property to keep, but a greater chance of saving the main residence and making the settlement stick over time.