G. Kefalas - The 'Privileges' from the Designation of the Debtor as Vulnerable

Summary: One of the central concepts in insolvency law following Law 4738/2020 is the notion of the "vulnerable debtor." But which debtor is considered "vulnerable" under the law, and what benefits come from this designation? In this article, we aim to practically approach the concept of the vulnerable debtor and shed light on the institutional framework points that vulnerable debtors can utilize.

1. Introduction

As is now widely known, the classification of a debtor as vulnerable is linked, on the one hand, to certain income and asset criteria, and on the other, to the composition (the number of members) of the household. Thus, in the case of a single-member household, a debtor is considered vulnerable if their annual income does not exceed €7,000, their bank deposits likewise do not exceed €7,000, and the value of their real estate according to the ENFIA does not exceed €120,000. These amounts increase for each additional household member. A household member is considered a dependent according to the Income Tax Code, as well as members who, despite not meeting the criteria for dependency, are hosted by the debtor, provided that this is declared in the latest income tax return. These income and asset criteria are significantly increased for individuals with a disability rate above 67%, following the recent amendment to Article 217 of Law 4738/2020 and the issuance of the relevant ministerial decision (JMD 106723 EX 2024). In this article, we focus on the benefits of the vulnerable debtor in the out-of-court mechanism and the bankruptcy process, as well as in cases of individual enforcement, such as the common scenario of the seizure of the debtor's real estate by a creditor.

2. The Vulnerable Debtor in the Out-of-Court Mechanism of Law 4738/2020

Law 5072/2023 introduced significant changes to the out-of-court debt settlement mechanism, some of which are directly related to the status of the applicant-debtor as vulnerable. Specifically:

For debtors who meet the criteria of vulnerability and have issued a certificate of vulnerability, it is presumed that all creditors consent to the counterproposal generated by creditors under Article 71(2A) of Law 4738/2020 (i.e., the proposal produced by the computational tool). It is important to clarify, however, that as explicitly stated in the law, the proposal that emerges will be the creditors' counterproposal under Article 71(2A), which considers the income and assets of all co-debtors, not just the applicant-vulnerable debtor. As a result, the monthly installment amount may be much higher than the financial capacity of the vulnerable debtor, depending on the financial situation of the co-debtors.

Specifically, if the applicant is a vulnerable debtor, even if a seizure has been imposed and an auction has been set, the proposal generated by the computational tool of the out-of-court mechanism cannot include a prepayment condition.

Finally, the vulnerable debtor can benefit from the subsidy for installment payments under Article 28 of Law 4738/2020, under the conditions of the provision. In this context, the debtor can receive support ranging from €70 to €210 on a monthly basis for the repayment of a loan secured by their primary residence.

It is also important to note that the vulnerable debtor will receive regulation under the out-of-court process, not only for debts for which they are primarily liable, but also for those for which they are a guarantor. For example, if a vulnerable debtor is a guarantor for a loan of a corporation, the resulting proposal will include the regulation of that loan.

3. The Vulnerable Debtor in Bankruptcy

The privileges that the vulnerable debtor has in filing a bankruptcy application are focused solely on the debtor's ability to request the transfer of their primary residence to the Acquisition and Leasing Entity (hereafter "Entity") – which has not yet been established, as the relevant competitive process is still underway (expected by the end of 2024, although JMD 123242 EX 2024, which regulates specific issues related to this process and the repurchase price, etc., has recently been issued) – and retain possession of it under a leasing arrangement, with the option to repurchase it after twelve years (the term of the lease) or earlier if possible. The condition for activating this process is submitting an application under Article 219 of Law 4738/2020 within 60 days of the bankruptcy decision's publication. During this time, the debtor can also receive a housing allowance, which will be paid directly to the Entity.

Until the Entity is established, the vulnerable debtor can request to join the interim state support program, which has been extended until March 2025 under Article 104 of Law 5072/2023. Under this program, the debtor can achieve a suspension of the auctioning of their primary residence until its transfer to the Entity, provided they make monthly payments. This payment is set at 3.5% of the primary residence's value, as determined by the latest ENFIA assessment, divided by twelve. For example, if the value of the primary residence is €110,000, the debtor will be required to pay a monthly installment of (110,000*3.5%/12=) €320. Part of this amount is covered by the state, with the state's contribution ranging from €70 to €210, depending on the household composition of the applicant.

4. The Vulnerable Debtor in Enforcement Regarding the Seizure of Their Primary Residence

The above privileges also apply to the vulnerable debtor in cases where enforcement is pursued through the seizure of their primary residence. Thus, the debtor can:

Request the transfer of their primary residence to the Entity, once it is established, and remain in it as a tenant, with the option to exercise the right to repurchase, as provided by law. In this case, the application must be submitted within 60 days from the date of seizure.

Until the Entity is established, join the interim state support program to suspend the enforcement procedure on their primary residence until its transfer to the Entity. A significant difference in this case compared to bankruptcy is that the installment amount will be calculated based on the first offer price mentioned in the seizure report, rather than the ENFIA value. Thus, the commercial value of the property, as determined by a certified appraiser during the seizure, will be considered, not the ENFIA value.

In any case, even if they request to join the above framework, the debtor's vulnerable status will play a crucial role in the legal actions they take. A notable example is the decision No. 109/2022 of the Piraeus Court of Appeals, which suspended the enforcement procedure against a vulnerable debtor, as it was likely that the appeal regarding the abusive nature of the procedure would be upheld, as the person facing enforcement was a vulnerable debtor who had sought debt regulation, while the auction was for their primary residence. In a similar case, the decision No. 554/2023 of the Lamia Single-Member Court of First Instance canceled a declaration of auction continuation against a vulnerable debtor who had applied to the out-of-court debt settlement mechanism, as it was deemed abusive.

5. Conclusion

The concept of the vulnerable debtor, as shown by statistics and court practice, is not fully understood and has not been sufficiently utilized as part of the debtor's defense against management companies and credit institutions. Although the (income and asset) criteria for inclusion in this category remain low, there are many cases where, due to household composition, the debtor can be classified as vulnerable and take advantage of the benefits provided by the law in insolvency and enforcement procedures.