When an individual ends up in a situation of over-indebtedness with no real ability to meet their debts, Spain's Second Chance Law offers a legal mechanism to try to start over, cancelling some or all of the outstanding debts under certain conditions.
What the Second Chance Law is
It's a legal, judicial procedure that allows individuals (both consumers and self-employed workers) in a state of insolvency, unable to pay their debts, to request the discharge (cancellation) of part or all of their outstanding debts, provided certain requirements are met and they've acted in good faith.
The good faith requirement
To qualify for this mechanism, the insolvency situation must not stem from fraudulent behavior or bad faith on the debtor's part (for example, not having hidden assets, not having committed crimes related to the debts, and having made a reasonable effort to meet their obligations before reaching this situation).
The prior attempt at an out-of-court settlement
Before going through the full judicial route, the procedure includes, in certain cases, an attempt at an out-of-court payment agreement with creditors, mediated by a professional appointed for that purpose, where a restructuring of the debts (write-offs, payment extensions) can be proposed before reaching full judicial discharge.
Which debts can be cancelled and which can't
Not all debts qualify for discharge under this mechanism. Generally excluded from cancellation are maintenance debts (alimony/child support), certain debts arising from civil liability for a crime, and certain public-law debts below certain limits, although the regulations have progressively expanded the scope of discharge through successive reforms.
The full judicial process
If a satisfactory out-of-court agreement isn't reached, the process continues through the courts, where the judge can grant discharge of unpaid liabilities, in some cases subject to a subsequent payment plan over a set period, or immediately if certain conditions regarding the debtor's assets are met.
The consequences of using this mechanism
Using the Second Chance Law isn't without consequences: it can involve liquidating certain assets from the debtor's estate to partially satisfy creditors before the final discharge, in addition to being reflected for a time in certain registries that can make it harder to access new financing in the near future.
Before reaching this point, review your alternatives
If you're struggling with several debts, before considering a procedure of this kind, it's worth weighing other alternatives, such as negotiating directly with your creditors or possibly consolidating your debts on reasonable terms. Our personal loan calculator can help you assess the real cost of the different alternatives before deciding which path to take.