"We're drawing a definitive line under the Hypo affair" the minister told journalists, referring to state bank Hypo Group Alpe Adria (HGAA), which has saddled Carinthia with 11 billion euros in debt.
The deal will see creditors receive 75 percent of the face value of the HGAA bonds they own. They will be offered to buy that value of Austrian government bonds at 75 percent face value.
The proposal is better than the one creditors rejected in March as the Austrian government bonds mature in 13 instead of 18 years.
Schelling said an agreement in principle has been signed with a portion of creditors and compensation could be launched in September.
The creditors include Germany's Commerzbank and a Dexia unit, according to Bloomberg.
The saga is a legacy of late Austrian far-right political Joerg Haider, formerly premier of Carinthia, who died in 2008.
Under Haider, HGAA expanded into the Balkans as well as Italy and Germany via acquisitions and risky investments, expanding its balance sheet fourfold to some 40 billion euros.
Bavaria's state lender BayernLB bought a majority stake in 2007 in HGAA but two years later, as the global financial crisis raged, the bank came close to collapse and Austria nationalised it.
After a long and bitter dispute, Austria finally agreed last November to pay Bavaria 1.23 billion euros to put an end to the feud.