What is the Second Chance Law

An introduction to the law, explaining its objectives and how it works

Key ideas about the Second Chance Law that you should keep in mind: * The Second Chance Law provides the possibility of completely eliminating outstanding debts, as long as they are met certain requirements for your application. It is essential to have debts, even if you are up to date with payments, with at least two different entities, such as financial institutions, suppliers, Treasury or Social Security. * With the reform of the Second Chance Law in 2022, significant modifications have been made. The deadlines have been reduced, which now have a maximum limit of 18 months, the procedure has been simplified and the costs involved have been reduced. It should be noted that failure to comply with this 18-month time limit may lead to sanctions for those responsible for the delay, especially the Insolvency Administrator. * The new version of the Second Chance Law allows the cancellation of up to €10.000 of debt with the Treasury and another €10.000 of debt with Social Security. It is no longer necessary to attempt an out-of-court agreement with creditors to benefit from this law; It is now possible to directly access the judicial phase. * The applicant has the option to choose between liquidating his assets and eliminating all his debts or preserving his home and agreeing to a payment plan to settle the part of the debts that are not eliminated. *One of the key advantages of the Second Chance Act is that it stops ongoing garnishments and debt collection proceedings. At the end of the process, the records in delinquency files are eliminated, allowing applicants to effectively recover their financial health.

What is the second chance law?

The Second Chance Law is a legal tool that allows individuals and the self-employed who are struggling with overwhelming debt to request a process that could lead to the total or partial cancellation of their debts.

Its main objective is to provide a legal and structured solution for those who, due to adverse circumstances, have become trapped in a cycle of unsustainable debt.

Objectives of the second chance law

This law is designed to allow individuals and the self-employed to meet their payment obligations by eliminating their debts in whole or in part , giving them the opportunity to start from scratch.

This Second Chance Law seeks to help those who find themselves in a situation of insolvency or bankruptcy to overcome it.

The procedure of this law in Spain fulfills a triple function: social (regeneration of the citizen economy), collection effectiveness (transparency and availability for creditors) and procedural economy (unification of claims for amounts in a single multipurpose process).

With this law, the debtor can exclude the principle of universal property responsibility contained in article 1911 of the Civil Code: "The debtor is responsible for the fulfillment of the obligations with all his assets, present and future." 

In this way, this Law:

1. Offers a new opportunity: The law seeks to provide debtors with a second chance to rebuild their financial lives, freeing them from the financial burdens that have been affecting them.
2. Support entrepreneurial activity: The legislation also applies to self-employed individuals and entrepreneurs who have experienced financial difficulties. By alleviating their debts, they are given the opportunity to continue their entrepreneurial endeavours and contribute to economic growth.
3. Promotes investment and innovation: The Second Chance Law creates an environment where people can take risks without the overwhelming fear of perpetual debt, which in turn encourages investment and innovation in the region.

Where is the second chance law regulated?

• La 25 / 2015, of July 28, of the second chance mechanism, reduction of the financial burden and other social measures, which came into force on July 30, 2015.
• La Bankruptcy Law, modified by Law 16/2022, of September 5, to reform the consolidated text of the Bankruptcy Law, approved by Royal Legislative Decree 1/2020, of May 5, for the transposition of Directive (EU) 2019/1023 of the European Parliament and of the Council.

This latest insolvency reform came into force on September 26, 2022 , with the exception of Book Three of the TRLConc (LA LEY 6274/2020) on the new special insolvency procedure for micro-enterprises, and the 11th Additional Provision, referring to the deferrals and installments of tax debts by the AEAT, in force since January 1, 2023.

Who can benefit from the second chance law?

The Second Chance Law represents a legal remedy available to natural persons, whether private individuals, self-employed individuals or businessmen, who are trapped in a situation of insolvency and cannot pay the debts they have incurred.

An essential requirement to qualify for this second chance is the existence of debts, even if they are up to date with payments, with at least two different creditors.

These creditors can be financial entities, suppliers, the Treasury or Social Security, among others.

The possibility of benefiting from the Second Chance Law extends to both individuals residing in Spain and foreign debtors, provided they have their legal residence in Spain and have the required documentation in order.

It also applies to those foreigners who, although they do not have legal residence in Spain, maintain their main center of interests in this country, which includes aspects such as assets, assets, businesses, administration, financing and debts.

It is relevant to mention that the procedure will be carried out in the court corresponding to the place of registration of the debtor.

In the case of companies, instead of the Second Chance Law, there is the bankruptcy procedure as an option to face financial difficulties.

Requirements to benefit from the second chance law

The Second Chance Law focuses on the credit history of the insolvent debtor, seeking to benefit those individuals who have proven to be good payers but are in a difficult financial situation.

However, reforms in the bankruptcy field have adjusted the necessary requirements, particularly some provisions that evaluate good faith conduct on the part of the debtor.

Requirements:

The requirements that must be met to access the second opportunity are the following:

1. Proven insolvency: The debtor must demonstrate his insolvency and prove that he does not have sufficient assets to meet the outstanding debts. This situation is not limited to simple over-indebtedness, but implies a real lack of resources to meet financial obligations.
2. Good faith of the debtor: To obtain exoneration, the debtor must act in good faith. This implies that he cannot have been declared as an affected person in the bankruptcy qualification judgment of a third party, who has been classified as guilty. Nor can they have been convicted of economic or property crimes against public institutions such as the Treasury or Social Security in the last ten years.
3. Elimination of the obligation of extrajudicial payment agreement: The rule that required the debtor to have previously attempted an out-of-court payment agreement without success has been repealed, simplifying the process.
4. Elimination of the restriction on job offers: The requirement that prohibited the debtor from having rejected a job offer in the four years prior to the declaration of bankruptcy has been eliminated, providing greater flexibility to the debtor.
5. Reduction of deadlines: The minimum period between a request for exoneration and the exoneration previously granted to the same debtor has been reduced from ten to five years. In cases where exemption is obtained through a payment plan, the term is further reduced to two years.

Purpose of the 2nd chance law:

These adjustments to the Second Chance Law seek to facilitate access to this legal resource for those who, despite having demonstrated their solvency in the past, face adverse economic circumstances that prevent them from fulfilling their financial obligations.

How does the Second Chance Law work in Córdoba?

The Second Chance Law process in Córdoba consists of several key stages:

1. Legal advice: Your first step is to seek legal advice from our lawyers specialized in the Second Chance Law in Córdoba. They will evaluate your financial situation and guide you through the process.
2. Extrajudicial conciliation: In some cases, an out-of-court solution can be attempted with your creditors before submitting a formal request. If this route is not successful, we proceed with the legal application.
3. Request to the judge: We present your request before the competent judge in Córdoba, who will evaluate the situation and, if you meet the requirements, may agree on a payment plan, a restructuring of the debt or even its cancellation.
4. Compliance with the plan: If a payment plan or restructuring is approved, you must strictly comply with it. If debt cancellation is the option, you will be freed from your financial obligations.
5. Later benefits: Once you have successfully completed the Second Chance Law process in Córdoba, you can start over without previous financial burdens, allowing you to regain control of your financial life.

How long does the second chance law procedure take?

The Second Chance Law process can vary in duration, generally from a few months to a maximum of 18 months in more complex cases or in areas with congested courts.

These shorter deadlines speed up the procedure and reduce costs.

It is important to note that the duration depends largely on the court and the insolvency administrator , so any delay may be grounds for complaint by the debtor's legal defense, which may speed up the process.

During the second chance process, the debtor is protected and debt claims and garnishments are stopped, giving them breathing room until their case is resolved.

The collection of documentation and the submission of the application process usually take about a month.

With the reform, the intervention of notaries, commercial registries , chambers of commerce, and the appointment of bankruptcy mediators are no longer required , simplifying the process and transferring it directly to the commercial court.

The judicial process itself will take at least six months, depending mainly on the congestion of the courts, the complexity of each case and the amount of assets that the debtor must liquidate if opting for this alternative.

If, however, you choose to commit to a payment plan, a resolution will be issued accordingly, and the plan will generally last three years.

How much does it cost to apply for the second chance law with lawyers in Córdoba?

RRYP Lawyers as a professional law firm in Cordoba, Malaga and Madrid He is free to set his fees.

In our office we have professionals with more than 15 years of professional experience who can manage your matter in an exemplary manner.

The most common rates range between €2000 and €3000, although it depends on the case.

Generally, our payment method is a single, closed payment, which is divided into several parts, thus ensuring the agility of the process.

Conclusion

The Second Chance Law is an invaluable opportunity to free yourself from overwhelming debt and regain your financial stability.

If you find yourself in an unsustainable financial situation in Cordoba, our lawyers specializing in this law can be your allies for a new beginning.

For more information and specific advice, we recommend consulting with our lawyers in Cordoba , who have the experience and knowledge necessary to guide you through this legal process and provide you with the necessary support.

Regain your financial control and start over in Córdoba with the Second Chance Law.

RRYP Global , lawyers specializing in second chance law.

Write to us at [email protected] or call us at +34 957 858 951.

We work throughout Spain.