It works as follows. The city councils become the debtors, pay the creditors the amount that the city councils believe that the citizens in debt would be able to pay off in three years.

That wipes the slate clean and makes the debts disappear. The citizens in debt then pay off their city council in the course of the following three years.

Everybody wins.

If it is expected that the citizen in question will have a considerably higher income soon, this option is not available because it will enable this particular citizen to pay off the debts, resulting in larger payments for the creditors.

https://nos.nl/artikel/2469718-bijna-alle-gemeenten-nemen-inmiddels-schulden-van-burgers-over