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Optimism over insolvency framework

The last of the five bills comprising the insolvency framework was approved by the Cyprus cabinet on Friday and government spokesman Nicos Christodoulides is optimistic that Parliament will endorse the framework.

Optimism over insolvency frameworkTHE CABINET has approved the last of the five bills comprising the insolvency framework, which includes details of guarantors’ obligations in respect of the debt.

The final bill, which was approved on Friday, covers personal repayment schemes (consensual or imposed), which protects primary residences from seizure under certain conditions and the role of guarantors, repayment schemes and debt-relief orders.

Consensual personal repayment scheme

A licensed insolvency practitioner will prepare a consensual personal repayment scheme on behalf of the borrower and will apply for a 70-day execution proof court order giving them time to prepare the proposal. However the borrower will be unable to request a personal repayment scheme if more than 25% of the debt was incurred during the six months prior to their application.

The lender is obliged to accept the repayment scheme, which may last for up to 5 years, taking into account “reasonable living expenses” issued by the Commerce Ministry.

The personal repayment scheme will maintain lenders in the same or a better position had they foreclosed on a property.

Primary residences will not be repossessed if the value of the home is below €250,000, the debt does not exceed €300,000 and other property assets do not exceed €250,000. In addition, the borrower must be able to prove a loss of income of at least 25% “for reasons beyond his control” (as a result of the financial crisis.)

When protecting a loan defaulter’s primary residence, the insolvency practitioner must consider four factors:

  • The cost of keeping the primary residence, including maintenance, taxes, and insurance.
  • The borrower’s income.
  • The ability of others living in the house to contribute to repayments.
  • The needs of the borrower and his family and the cost of alternative housing arrangements.

Imposed personal repayment scheme

Personal repayment schemes may be imposed on a borrower by a court. They will remain inforce for three years and may be renewed on expiry.

As with personal repayment scheme, imposed repayment schemes will maintain lenders in the same or a better position had they foreclosed on a property.

The borrower’s income exceeding “reasonable living expenses” has to go towards servicing the debt. In addition, all the other borrower’s assets have to be taken into account, with the exception of liquid assets worth less than €35,000 and income generating properties.

Guarantors

The fifth bill also enables lenders to pursue loan guarantors for payment, but restricts the amount they may claim to the difference between the assessed value of the collateral and the size of the loan they guaranteed. E.g. If the unserviced loan amounts to €100,000 and the collateral (property) is valued at €80,000, the guarantor will pay €20,000.

The lender may also pursue loan guarantors for up to two years following the implementation of the repayment scheme.

A guarantor may also take action against the borrower for the amount he may be required to repay.

Coordinated repayment schemes

Coordinated repayment schemes relate to small businesses that employ less than 10 staff and which meet the criteria for personal repayment schemes (above), in which the owner of the business has used their primary residence as collateral for their business’ loan.

An examiner will be appointed to review the borrower’s finances and propose a settlement, which will need to be confirmed by a court.

Debt-relief orders

Borrowers whose loans do not exceed €15,000 may request the Insolvency Service to issue a debt-relief order. The borrower has to demonstrate insolvency for at least two years following their request, their income levels over and above “reasonable living expenses” should not exceed €100 and assets protected during the bankruptcy procedure should not exceed €400.

Debt-relief orders will be issued for a two-year ‘monitoring period’. On expiry the borrower and their guarantors will be relieved of any obligation.

Readers' comments

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  • @Shaun on 2015/03/09 at 3:26 pm – The proposed legislation only offers protection for primary residences (under certain circumstances) – not holiday homes.

  • Shaun says:

    Nigel – does the legislation cover protection for second/holiday homes?

  • @Kalin on 2015/03/08 at 12:45 am – I expect the information (assuming it’s available) will be somewhere on the Ministry of Energy, Commerce, Industry and Tourism website.

  • @molliemoo on 2015/03/08 at 1:14 pm – As I replied when you asked this question on 26th November:

    As the Foreclosures Law has yet to be published, no-one knows whether the homes of those who were duped into buying property built on mortgaged land will be protected. (There was protection in one of the draft amendments to the law when it was announced originally, but I don’t know whether this has been carried forward into the new draft law).

  • @pils on 2015/03/08 at 10:58 am – I don’t think that anything in this package of bills will help those with Swiss Franc loans. As for the developer acting as your guarantor – this merely helps the bank to recover the property should the purchaser default on their loan repayments.

  • molliemoo says:

    Any ideas on how they intend to tackle innocent, fully paid up Owners who have a hidden Developer Mortgage?

    Of course I am referring to the rogue Developers that took vast sums from the Bank to build, sold their properties making a tidy profit, then vanished with their profits without paying anything, or very little back to the bank.

  • Deanna says:

    Oh heavens, here we go again; legislation to protect those who made the problems in the first place. And lawyers rubbing their hands in anticipation of all the extra €€€s they will earn.

    @Mike, you’ve said it all for us, thank you.

    Just an extra thought; why should ‘income-generating properties’ not be counted in the Repayment Scheme? Why shouldn’t the rent from these properties go towards paying-off the loan/mortgage?

  • pils says:

    Nigel If accepted and implemented into the final bill. How would this bill help people from UK with Swiss franc mortgages. Does the guarantor bill apply to us in UK and in our case the developer responsible for our debt as stated above?

  • Mike says:

    To be perfectly honest I find all this so called legislation proposal vile. Will it be acceptable to the country’s lenders – probably!

    For those of us who borrow nothing but save as best we can and build our homes piece by piece as funds allow it comes as a double blow as we now have to pay for the excesses, irresponsibility, unaccountability and selfish self-servance of others as well as for our own homes as modest as they are (because we have to pay for them).

    If a loan is less than €15K it can effectively be written off. Who will pay for that? – we will. Guarantors will only have to pay the difference between the value of the collateral and the size of loan – why are they not responsible for the whole loan? If this is not designed to protect the irresponsible I really don’t know what is. Developers (frequent guarantors) must be laughing their socks off and holding celebration parties all over the Island.

    If a residence is valued less than €250K it cannot be seized – Why not? If you don’t pay your debts you lose it and to cap it all the debt can be up to €300K, was the extra €50K for the Merc and Pajero for the wife. I’m fed up with paying for everyone else why don’t they look after their own debts and let me save what I should be able to without having to pay it over in tax to be given to them. I need a place to live too.

  • Kalin says:

    Thanks Nigel for the news!
    Could you please direct me where can I see description of “reasonable living expenses” issued by the Commerce Ministry.
    Thanks!

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