Banks are raising serious concerns about the draft bankruptcy code the government is preparing and the clauses on the protection of borrowers’ main residence, believing it will serve as another method for delays at the expense of lenders and the state.
The new bankruptcy code will allow borrowers who declare themselves bankrupt or at risk of having their home auctioned off to sell their main residence to a state entity and continue residing there as tenants with a buyback option after a number of years.
Banks argue that the criteria according to which a household can be considered vulnerable so as to qualify for the clause’s provision are particularly generous. Bank officials explain that as 90% of loans cover a property valued at under 200,000 euros, virtually all borrowers will qualify for state support, paving the way for the universal use of the primary residence protection system.
The criteria debtors must fulfill in order to protect their home via the sale-and-leaseback entity are the following:
– Their family’s monthly disposable income should not exceed normal living expenditure plus 70%.
– The taxable rate (known as the objective value) of their main residence should be up to €200,000 for a debtor who is single, with the ceiling raised €40,000 if the debtor is married and another €20,000 per dependent child (up to three children).
– The objective value of the debtor’s other real estate assets, plus any assets belong to their spouse and dependent child/ren, must not exceed €100,000, while any other movable assets should not exceed €60,000.
Bank officials point out that the limit of €300,000 for a five-member household combined with the other income criteria (with a total asset value up to €460,000) are particularly generous given the current conditions. This takes into account the fact that at the height of the debt crisis in the 2010s the highest value of protected homes amounted to €280,000.
The banks are also in favor of the strict verification of the households requiring protection by the property acquisition entity before a debtor resorts to the bankruptcy process; they also call for the entity to acquire the asset only after the auction preparation has started and before it is completed.