The vast majority of municipalities in the Netherlands borrow from people who can no longer pay for themselves on a renewal loan. This was determined after an investigation by the security fund for loan restructuring. The fund is “pleasantly surprised” at the growing popularity of restructuring loans because it often puts the borrower at great ease.
Restructuring loan is an alternative to traditional debt mediation. According to the old regulation, creditors remain in the picture for three years. During this period, the borrower pays as much as he can allocate each month (repayment capacity: everything above the subsistence level). If he manages to meet this obligation, the creditors waive the debt after these 36 months.
quantity at one time
The situation is different in the case of a renovation loan. The community takes the blame. The creditors then receive from the municipality an amount equal to what the debtor can pay in three years. Creditors immediately cancel the debt in return for this amount and disappear from the scene. Only one creditor remains for the debtor: the community.
See how the restructuring credit got Marcel Vonk out of trouble:
Debt often comes with everything that can go wrong in life. “We often go through a difficult divorce. Customers who can no longer work because they are under too much stress,” says debt consultant Lilian Vrijhof. “It’s actually a cycle that needs to be broken.”
Vrijhof says a restructuring loan can help break a vicious circle. He works at Stadsring, the debt recovery agency of the City of Amersfoort. There are now restructuring loans available for 80 percent of assistance requests.
Traditional debt mediation is still used when the debtor is likely to experience significant income growth over the next three years. “The borrower can then repay more and the creditors get more,” explains Vrijhof.
areas of interest
Debt advisers must consider the interests of the debtor and creditors. Because creditors must be able to assume that the maximum will be reached through a mediation process or a restructuring loan.
In addition, Vrijhof says there is a growing understanding among creditors that a wage increase during the payback period does not necessarily mean that more can be repaid. “For example, with a wage increase, the borrower may miss out on benefits, leaving less to pay.”
Vrijhof says that the creditors he works with see the great benefit of the rehabilitation loan as receiving lump-sum payments instead of 36 monthly installments. “You can close the file and no longer have to deal with all sorts of administrative checks. They also benefit from the debtor becoming financially healthy as soon as possible.”
Restructuring loans have become increasingly popular in recent years. In 2020, industry association Schuldhilfe NVVK found that its members offered approximately the same number of restructuring loans as brokers. A year later there were significantly more. Now, three years later, research by the Guarantee Fund for restructuring loans shows that 90 percent of municipalities issue restructuring loans.
Larger municipalities often have many years of experience with restructuring loans. Small and medium-sized municipalities are now participating. “We have seen in recent years that municipalities are willing to provide rehabilitation loans, but are unwilling to take the risk of not fully repaying the loan,” said Frank Dijkstra of the guarantee fund.
subsidy
To mitigate this risk, the government-subsidized Guarantee Fund was established last year. Non-repayment can be insured for a premium of 1 percent of the loan amount, so that the lending municipality always gets its money back.
“This premium is actually too low to cover the risk. This should now make the system attractive,” says Dijkstra. “We expect premiums to increase slightly in the coming years. But it is still very attractive for municipalities to take the risks together.”
The guarantee fund’s research shows that at least 22 out of 342 municipalities do not offer renewal loans. Of these 22 people, 9 are considering doing it. It is not known whether 14 municipalities received restructuring loans.
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
