Second Chance Lawyer Barcelona | Conesa Legal

The second chance mechanism and the discharge of unpaid debts, outlined in Article 486 and subsequent articles of the Bankruptcy Law, help individuals overcome perpetual, unmanageable situations of debt.

Written by Josep Conesa

Insolvency and employment lawyer

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WHAT IS THE SECOND CHANCE LAW?

Watch this brief video for a quick explanation of the timing and procedure in Spanish

Explanations by Josep Conesa, insolvency lawyer in Barcelona

HOW MUCH DEBT CAN BE DISCHARGED IN A SECOND CHANCE BANKRUPTCY?

First, good faith is required as a subjective condition (Article 487 of the Bankruptcy Law), and good faith is presumed when:

1. The bankruptcy is not declared culpable. However, if declared culpable due to late filing, the judge may allow for the exoneration of the debts.
2. The debtor has not been convicted by a final judgment in the last 10 years for:
   • Crimes against property
   • Crimes against the socio-economic order
   • Document forgery
   • Crimes against the Public Treasury and Social Security

If this subjective condition is met, Article 488.2 of the Bankruptcy Law, in relation to Article 491, allows for the application of a second chance (Article 489 TRLC):

FULL DEBT DISCHARGE

• To OBTAIN the benefit of the exoneration of unpaid debts for all claims against the debtor, provided that all claims against the estate (créditos contra la masa) and privileged bankruptcy claims have been fully paid, with an attempt having been made to reach an out-of-court payment/settlement agreement.

PARTIAL DEBT DISCHARGE

• To OBTAIN the exoneration of 25% of the ordinary bankruptcy claims, even without attempting a prior out-of-court payment agreement, provided that all claims against the estate and privileged claims have been fully paid.

For more information on this matter, refer to the link about the out-of-court payment agreement, BEPI and the benefit of the discharge of unpaid debts in the new consolidated text of the Bankruptcy Law.

WHICH DEBT MUST BE PAID IN A SECOND CHANCE BANKRUPTCY?

• the debtor who meets the requirements to be able to do so,
• had attempted a prior out-of-court payment agreement,

ARE GUARANTEES RELEASED UNDER THE SECOND CHANCE LAW?

The majority doctrine states that guarantees are not included in the discharge, meaning guarantors who were jointly liable with the bankrupt debtor for the creditors' claims remain obligated to pay. This general doctrine is based on Article 178 bis of the Bankruptcy Law, which states that "no one may invoke the benefit of the debtor’s discharge or subrogate by subsequent payment into the rights that the creditor had against the debtor unless the discharge granted is revoked."

However, a minority doctrine, based on Article 1847 of the Civil Code in relation to Articles 1190 and 1207 of the Civil Code, asserts that guarantees do get extinguished. This article states:

"The obligation of the guarantor is extinguished at the same time as that of the debtor and for the same causes as other obligations."

There are two court rulings that follow this minority doctrine: The Order of the 18th of May 2016, from the Commercial Court No. 3 of Barcelona, and the Order of the 17th of January 2017, from the Court of First Instance No. 8 of Barcelona. These two orders extended the benefit of the discharge of unpaid debts of the principal debtor to the guarantors, considering that their obligation was also extinguished with the principal obligation.

Additionally, the Court of First Instance No. 5 of Torrent issued an Order on the 18th of January 2018, discharging the good faith debtor under Article 178 bis, 3, 1º, 2º, 3º, and 4º, and also discharging the possible guarantors of the credit.

HOW LONG DOES A SECOND CHANCE BANKRUPTCY TAKE?

The duration of a second chance bankruptcy may vary depending on whether there are assets to be liquidated and the efficiency of the bankruptcy administrator and the Court. Currently, commercial courts have reached an agreement to process bankruptcies without assets to be liquidated more quickly.

All information on bankruptcies can be found at:

BIBLIOGRAPHY AND JURISPRUDENCE ON THE SECOND CHANCE:

1. Seminars Agreements of Commercial Judges on the Discharge of Unpaid Debts (Article 178 LC):
2. Interpretation of discharge: Supreme Court, First Chamber, Civil Section, Plenary Judgment 381/2019 of July 2, 2019, Appeal No. 3669/2016.
3. Doctrine of the Supreme Court on the discharge of debt and payment plans for public credits. Based on the European Commission Recommendation of March 12, 2014, and the recent EU Directive 2019/1023.
4. Judges consider there is legislative excess in Article 491 LC and will discharge self-employed individuals from public credit. This interpretation is supported by the interpretation committees of the Commercial Courts (see the one in Seville).
5. Duty of the debtor to request a payment deferral for debts to Social Security and AEAT (Tax Agency) as per Articles 495, 497, 655, and 671 of the LC.
6. Judgment 295/2022 of April 6, 2022, Appeal No. 1439/2019, First Chamber, Civil Section indicating the requirements of a payment plan:
   1. Payment schedule
   2. Installment payments
   3. Setting payments to cover the total non-dischargeable liabilities

HOW WE CAN HELP YOU:

• Preliminary Advice: Consultation with our bankruptcy specialists.
• Drafting, Preparation, and Submission: Handling the pre-bankruptcy and second chance application.
• Follow-up and Negotiation: Managing the Out-of-Court Payment Agreement.
• Advice During Bankruptcy: Continuous support and defense against any issues.
• Monitoring of Payment Plan: Oversight if an agreement is reached.
• Application for Discharge of Unpaid Debts: Pursuing discharge in accordance with the Second Chance Law.
  
  
  

CONTACT OUR SECOND CHANCE LAW SPECIALISTS:

Bankruptcy Administrator since 2010