01 Feb Decalogue of rules on the so called “second opportunity law”

The financial crisis left many citizens without work or without housing because they could not cope with the loans and, in general, the debts they had incurred.

But this was not the worst, because many people have experienced a tragedy when once they lost their house, they realized that they still owed money to the Bank, as a result of the decrease in real estate prices, and therefore, the value of adjudication in the auctions was negligible in relation to the outstanding debt.

Nowadays, the situation of these people can be reversed thanks to the publication of the so called Law 25/2015 of Second Opportunity which by, reforming the rules of insolvency among others, aims to give a way out to those who had lost everything and couldn’t start from scratch.

The main advantage of this Law is that it can allow the exemption of unfulfilled liabilities in the bankruptcy proceedings, that is, debts that can not be settled, as long as a series of circumstances are met.

We will explain 10 practical aspects of this new mechanism:

1.-When can we benefit from this Law?

In general, any person who is in a situation of impossibility to fulfill their commitments, either because they do not have a job, because they drag an excessive debt, etc. This is indifferent, the important thing is that the debts are really an insurmountable burdens and that they will disproportionately hamper that person in the future.

2.- Only people who have been self employed or have done any economic activity can benefit?

In fact, anyone can request it, no matter what has been previously dedicated to. In many websites it is advertised as if it were intended for entrepreneurs / freelancers but it is not completely accurate

3.-If all my debts come from a mortgage loan with the bank, can I benefit too?

Yes, the origin of the debts is not relevant. Later we will see that there is a type of debt that will not be extinguished in any case, but this is not the case.

4.-What is the first thing to do to start the process?

Before initiating legal actions, it is essential to try to reach an out-of-court settlement with the creditors, establishing withdrawals or waits or other mechanisms that allow the refinancing.

5.-Is it necessary to act through a lawyer?

It is recommended that the debtor has legal assistance from the first moment. Obtaining the exemption of debts can only be done through the procedure of bankruptcy for which the intervention of attorney and solicitor is necessary.

6.-All debts can disappear every time?

There are two types of debts that cannot be included in the Second Opportunity mechanism as established by law:

– Debts with the Treasury and Social Security.

– Child support.

But as we see, they are the exception. The rest, with banks, consumer credit entities, etc. can be eliminated.

7.-What happens if an agreement with the creditors is not reached?

The next step would be to ask the judge for voluntary insolvency. Having not been able to find an “friendly” solution, the Mercantil Judge will now be the one to hear a procedure that could be brief if it is clear from the beginning that the debtor has neither assets to pay nor does he have recurring income that could allow it.

8.-How do you get the elimination of debts or “exoneration of liabilities”?

The Law subject the exemption of debts to compliance and accreditation of a number of requirements, being the essential one the demonstration of the “good faith” of the debtor, that is, that is not using unlawfully this procedure to avoid responding to their creditors.

These requirements would be the following:

• That, before going to the bankruptcy proceeding, an attempt has been made to reach an out-of-court settlement with the creditors.
• That the judge does not consider that the insolvency has been deliberately provoked by the debtor.
• That, in the ten years prior to the request for insolvency, the debtor has not been benefited again by the Second Opportunity Law and has not been convicted for crimes against the property, against the socioeconomic order, for falsification of documents, against the Public Treasury and Social Security or against the rights of workers.
• That, in the four years prior to the request for insolvency, the entrepreneur has not rejected an offer of employment “adequate to his capacity”. This may be the point of greatest indeterminacy because it does not seem viable for creditors to have the ability to inquire about such “offers” of employment.

9.-Is it a very expensive procedure?

No, logically you have to take into account the individual conditions of each case, but you can find flexible and alternative solutions so that the economic cost is not an obstacle to access a good legal advice and that really helps to solve the situation

10.- Are debts extinguished “for life”?

Yes, except in a specific case: that new extraordinary income is obtained or that the creditors justify that we have acted in bad faith, hiding income. But even in this case they only have 5 years to bring it to the Judge.

In the remaining cases, these debts will no longer be a problem.

If you are in a critical situation, at Navarro Llima Abogados SL we have specialized lawyers in bankruptcy proceedings and we could help you. Do not hesitate to contact us for more information.

Héctor González

Lawyer