Out-of-Court Debt Settlement Mechanism or Debt Settlement in Up to 72 Instalments?
In view of the relatively recent debt settlement scheme providing for up to seventy-two (72) monthly instalments, which was introduced by Articles 19 and 22 of Law 5313/2026, we considered it important to examine whether this scheme indeed offers advantages compared with the pre-existing out-of-court debt settlement mechanism under Law 4738/2020, which, as is well known, provides for up to two hundred and forty (240) instalments for the settlement of debts to the State (primarily the Independent Authority for Public Revenue – AADE) and to Social Security Institutions (SSIs).
In this article, the two schemes will be compared in relation to five key issues: (1) which debts may be included in them, (2) what the eligibility requirements are, (3) by when an application may be submitted, (4) what the outcomes of each scheme may be and (5) what circumstances result in the loss of each arrangement.
1. Which debts are eligible
The scheme of up to 72 instalments covers debts owed to the Tax Administration and to SSIs. More specifically, it covers assessed debts owed to the Tax Administration which became overdue by 31/12/2023 (Article 19 para. 1 of Law 5313/2026), as well as debts owed to e-EFKA and other SSIs relating to periods up to 31/12/2023 (Article 22 para. 1). All such debts must be included in the arrangement, whereas those subject to a suspension of payment may be included on an optional basis, at the debtor’s election. By contrast, any debt that became overdue after the above date falls outside the arrangement and must either be repaid or settled under another scheme. Lastly, the law also provides for certain express exclusions, such as debts arising from the recovery of State aid (Article 19 para. 13).
As regards the out-of-court debt settlement mechanism, its scope is not limited to debts owed to the State and SSIs, since debts owed to financial institutions (banks, funds, etc.) may also be included (Article 5 para. 1 of Law 4738/2020). The out-of-court mechanism covers all debts owed to the State and SSIs (with the exception of those expressly specified by law, such as claims arising from the recovery of State aid, debts arising from European Union customs duties that constitute EU revenue and are remitted to the European budget and debts owed to a foreign State, pursuant to Article 7 para. 4), without any time restriction as to when those debts became overdue. Assessed debts owed to third parties and collected by the Tax Administration are also deemed to constitute debts owed to the State (Article 6 para. 1 point xvi). There is, however, a minimum aggregate threshold, since an application may not be submitted where *“the total amount of the debts of the person referred to in paragraph 1 to financial institutions, the State and Social Security Institutions does not exceed five thousand (5,000) euros”* (Article 7 para. 3 point a).
2. Eligibility requirements
For inclusion in the scheme of up to 72 instalments, it is required, first, that the eligible debts were not subject to a settlement arrangement as at 21/4/2026 and have not been included in a settlement arrangement by the date on which the application is submitted. It is further required that, at the time of the application, the debtor have no other overdue debts or that all such debts be settled in a lawful manner. Specifically in relation to debts owed to the Tax Administration, the debtor must also have filed all income tax returns for the preceding five years and must not have been finally and irrevocably convicted of tax evasion or smuggling (Articles 19 para. 2 and 22 para. 2 of Law 5313/2026).
By contrast, any natural or legal person with bankruptcy capacity may be included in the out-of-court mechanism (Article 7 para. 1 of Law 4738/2020). The law nevertheless lays down a number of disqualifying conditions (Article 7 paras. 2 and 3). Among other things, an application may not be submitted where the total amount of the debts does not exceed EUR 5,000, where certain collective insolvency proceedings are pending or have previously taken place, where the person has been placed into dissolution or liquidation, or where there has been a final and irrevocable conviction for certain offences, such as tax evasion or money laundering. It should also be noted that a debtor whose debts are all current or performing may be included in the out-of-court arrangement if the debtor demonstrates a deterioration in their financial position of at least 20% (Article 7 para. 3 point f).
3. By when may the application be submitted
An application for the scheme of up to 72 instalments may be submitted electronically until 31/12/2026.
By contrast, the out-of-court debt settlement mechanism is a standing mechanism with no closing date.
4. The effects of inclusion
Under the arrangement provided for by Law 5313/2026, the debt is repaid in up to seventy-two (72) monthly instalments, with a minimum monthly instalment of thirty (30) euros. Instead of interest and late-payment surcharges, the principal debt is subject to interest calculated on the basis of the interest rate applicable to the standing settlement scheme under Law 4152/2013, which remains fixed throughout the duration of the arrangement (currently 5.84% per annum for tax debts). No debt write-off is provided for. Provided that the debtor complies with the arrangement, proof of tax and social security clearance may, subject to certain conditions, be issued, while the imposition of enforcement measures and the continuation of enforcement proceedings are suspended. At the same time, criminal prosecution for failure to pay debts owed to the State and social security contributions is suspended, with the offence ceasing to be punishable in the event of full repayment, while, naturally, the limitation period applicable to the debts subject to the arrangement is also suspended (Articles 19 para. 10 and 22 para. 9).
Where successful, the out-of-court debt settlement mechanism results in a multilateral restructuring agreement with the creditors (or, where no financial institutions participate, in the so-called bilateral agreement, to which the State and e-EFKA are parties). As regards the State and SSIs, repayment may be extended to as many as two hundred and forty (240) instalments, with a minimum monthly instalment of fifty (50) euros (Article 22 of Law 4738/2020), while debts owed to financial institutions may be settled in up to four hundred and twenty (420) instalments, subject to certain conditions. A key advantage of the out-of-court mechanism is the possibility of a partial debt write-off. A write-off is neither automatic nor of a predetermined amount, but depends on the financial and other circumstances of each individual case. Based on our experience, we have seen cases in which no write-off is granted, as well as others in which the maximum number of instalments is granted and the greater part of the debt is written off. This possibility is, however, subject to significant restrictions, since, among other things, neither social security contributions nor principal debt arising from withheld taxes and taxes passed on to third parties (most notably principal VAT debt) may be written off (Articles 21 para. 4 and 22 of Law 4738/2020). The interest rate applicable to arrangements with the State and SSIs is currently fixed at 3%. It is also important that, as from the final submission of the application, enforcement measures against the debtor are suspended, as is criminal prosecution for failure to pay debts owed to the State and social security contributions. The suspension does not, however, extend to an auction scheduled to take place within three months of the final submission of the application or to preparatory actions taken by a secured creditor for the purpose of conducting that auction, including seizure (Article 18 of Law 4738/2020). Equivalent protection is provided after the restructuring agreement enters into force, for as long as the agreement is complied with (Articles 19 and 23). In such a case, an application for proof of tax and social security clearance may be accepted, while, upon application by the debtor, AADE may agree to render inactive seizures imposed on bank accounts in respect of the debtor’s future claims (Article 23). It must, however, be noted that financial institutions retain discretion as to whether to submit a settlement proposal (Article 5 para. 2), while the participation of the State and SSIs in the agreement is subject to the more specific requirements of Article 21.
5. When is the arrangement lost
The arrangement of up to 72 instalments is lost if the debtor fails to pay two (2) consecutive monthly instalments or delays payment of the final two (2) instalments for a period exceeding two (2) months, as well as if the debtor fails to repay or lawfully settle their other debts: in the case of pre-existing debts, within one month of inclusion in the arrangement, and, in the case of subsequent debts owed to the Tax Administration, within three months of the expiry of their payment deadline (Articles 19 para. 11 and 22 para. 10 of Law 5313/2026). Loss of the arrangement results in the mandatory immediate payment of the outstanding balance of the debt.
Under the out-of-court debt settlement mechanism, if the debtor defaults on an aggregate amount exceeding either the value of three (3) instalments or three per cent (3%) of the total amount due under the arrangement, each creditor covered by the agreement is entitled to terminate the restructuring agreement. The arrangement is then lost in relation to that creditor, and that creditor’s claims are reinstated to the amount at which they stood prior to the arrangement, less any amounts already paid (Article 27 of Law 4738/2020). It should also be noted that debts owed to the State which were settled under a restructuring agreement that was subsequently breached may not be settled again through a new application under the out-of-court mechanism.
## Concluding observations
The comparison shows that the scheme of up to 72 instalments has advantages in terms of the simplicity and speed of the procedure, but has a clearly narrower scope, provides for fewer instalments and does not allow for any debt write-off. By contrast, the out-of-court debt settlement mechanism allows debts to be addressed more comprehensively, including debts owed to financial institutions, provides for up to 240 instalments for debts owed to the State and SSIs and, depending on the circumstances of each individual case, may also result in a partial debt write-off, although the procedure is more complex and its outcome is not always certain. For a debtor who meets the eligibility requirements, the out-of-court mechanism generally appears to be the more comprehensive debt settlement tool, while the 72-instalment scheme is of particular practical significance mainly where inclusion in the out-of-court mechanism is not possible.
Angelos Ioannis Kladis Attorney-at-law