What the Second Chance Law is
Bad luck, poor personal or business decisions, an illness, a divorce or the closure of a business: there are many reasons why someone ends up with debts they will never be able to pay, either with what they own now or with what they will earn in the future.
Until a few years ago there was no way out. The debt stayed with you for life: wage seizures, no chance of starting a new business or getting a mortgage. That changed with Ley 25/2015, de mecanismo de segunda oportunidad, which brought this mechanism into Spanish insolvency law. Today it is governed by the consolidated text of the Ley Concursal (Insolvency Act), approved by Real Decreto Legislativo 1/2020 and thoroughly reformed by Ley 16/2022.
It is an insolvency procedure (concurso de acreedores) with special rules for natural persons, whether private individuals or self-employed. Its aim is the exoneración del pasivo insatisfecho (discharge of unpaid debts), meaning the judge cancels the debts you cannot pay. A company cannot obtain it: if your business is a limited company (sociedad limitada), the company will go through its own insolvency proceedings, and the discharge will only cover your personal debts, such as the guarantees you signed.
Requirements to qualify
The law requires you to be a debtor acting in good faith and sets this out as a list of exclusions. In short, you cannot obtain the discharge if, among other cases:
- In the previous ten years you have been convicted by final judgment of certain offences, such as offences against property and the socio-economic order, document forgery, or offences against the Tax Agency, Social Security or workers’ rights.
- In the previous ten years you have been penalised by a final decision for very serious tax, Social Security or employment infringements.
- The insolvency is declared culpable (concurso culpable).
- You do not cooperate with the court, or you hide information or give false or misleading information.
- You took on debt recklessly or negligently, which the judge assesses in light of your situation when you incurred the debts.
Also, if you have already obtained a discharge before, the law sets a waiting period before you can apply again, which differs depending on the route you used. Since the 2022 reform you no longer have to try an out-of-court agreement with your creditors before an insolvency mediator first, and you do not need to have no assets.
Two routes: liquidation or payment plan
- Discharge with liquidation. Your assets, except those that cannot be seized, are sold to pay your creditors, and whatever remains outstanding is cancelled. If you have no assets, the procedure is simpler.
- Discharge with a payment plan. You keep your assets, including your home, and for a period you set aside part of your income to pay your creditors under a plan approved by the judge. The plan generally lasts three years, or five if your main home is not sold. When it ends, the rest is cancelled.
What the discharge does not cover
Not every debt is cancelled. Excluded, among others, are maintenance payments, civil liability arising from a criminal offence, criminal fines and some administrative penalties. Debts to the Tax Agency and Social Security are only discharged up to a limit set by law. And if you have a mortgage, the part covered by the value of the property does not disappear.
It is a court procedure in which a lawyer and a court agent must take part. It is not a matter of weeks: how long it takes depends on the route chosen, your documents and the court’s workload. Before taking the step, it can be useful to check whether any debt can be challenged, such as revolving credit cards, or whether you are wrongly listed on a debtor register.
