Second chance law: a solution to your debts

second chance law

The second chance law was approved in 2015 by the United States Government to offer individuals and the self-employed the opportunity to leave behind a difficult economic situation. Thus, the guidelines are established to achieve the cancellation of debts through bankruptcy negotiation, as if it were a company. This is not a very popular option in the United States.

From Taichi Arts we want to explain how the second chance law works and if it is a good idea to take advantage of it if your debts drown you.

How does the second chance law work?

Until the enactment of this law, people with a debt that exceeded their economic capacity, which is known as over- indebtedness , had to carry the debt for life until they could repay it. Only a few cases had established jurisdiction and the indebted person had been allowed to file for bankruptcy.

This law contemplates that the over-indebted may reach an agreement that helps them pay the debt in accordance with their real payment possibilities through the BEPI (Benefit of Exoneration of Unsatisfied Liabilities), said in simple language: the cancellation of the debt.

Of course, applicants for this option must meet a series of requirements.

Who can apply to benefit from this law?

Companies are very clear about the rules, benefits and obligations of bankruptcy proceedings in the event of having to dissolve a company, but in the case of individuals and the self-employed, there was no procedure.

The Second Chance Law is aimed at these two groups. That were completely unprotected during the great economic crisis of 2008-2014 in which many people could not cope with the payment of their debts.

What are the requirements that we must meet

Law 25/2015 published on June 28, 2015 in the BOE , establishes in its third section the requirements to access the legal process that can lead us to the cancellation of debts

  • Not having equity : it is necessary to demonstrate that we do not have equity to repay debts. Or that the equity has already been used to partially cancel the debt
  • The total amount of the debt cannot exceed 5 million us dollars
  • That in the previous 10 years no request has been made to avail themselves of the second chance law
  • That a job offer has not been rejected
  • That he has not been convicted of a socio-economic, patrimonial or document falsification crime in the 10 years prior to the contest
  • Demonstrate good faith on the part of the debtor and has not been found guilty of having concealed documentation, solvency or assets

Each point has its clear development, but we explain them to you as a summary.

We must show that we do not have heritage, but it must be made clear that not everything is considered 'heritage'. For example, if we are self-employed and we have the necessary assets to maintain an ongoing economic activity . This would include a taxi, a delivery truck, machinery, a commercial premises ... We must have a regular source of income, be it a payroll or a freelance job or be in a demonstrable search for active employment.

The last point is very important: demonstrate good faith on the part of the debtor . This will imply that we must not hide assets , nor solvent capacity to face a debt, nor have we hidden or falsified documents. If bad faith is proven during this process, it will be automatically voided.

What is the second chance law procedure?

Here there are two instruments that are the out-of-court agreements and the benefit of exoneration or, what is the same: cancel the debts.

The out-of-court settlement

In short, it is a meeting to renegotiate the debt contracted with the creditors. The agreement remains under judicial protection without this preventing the intervention of a mediator between both parties. The mediator will be appointed before a notarial act.

The law stipulates that in two months, an agreement must be reached which must include the plan and schedule of payments that must be complied with by the debtor.

The exemption benefit: canceling debts

If no agreement is reached due to the refusal of the creditors to accept a pact, the phase is entered in which the judge can cancel 100% of the debt. Creditors can request cancellation of this decision if:

  • It is shown that income or assets have been concealed
  • The creditworthiness of the indebted has improved
  • The planned payment plan is not being met.

Can I eliminate all my debts and forever?

The answer is that the second chance law does not allow you to completely cancel debts . If we owe money to the tax administration or social security, we must deal with them independently and they cannot be included in the cancellation procedures provided for in the second chance law.

Mortgages, on the other hand, are excluded from this procedure as there is a specific law, although the second chance law may apply. Currently, Spanish law indicates that if we cannot pay a mortgage once the mortgaged home has been sold, we must pay the remaining amount. We recommend reading our article on changes in the mortgage law .

If we avail ourselves of the second chance law, once the home is delivered, the debt is canceled and a dation in payment is applied.

After 5 years, the debts will disappear effectively but if the creditors detect that they have acted in bad faith, they may request a review of the case.

Second Chance Law: How to Cancel Debts?

This law is a procedure to give a second chance to people who have gone through a bad streak. Thus, they can leave the delinquent files such as RAI or Credit Checker, access credit and financing and start over.

At Taichi Arts we believe that we all deserve it and that is why we explain how you can get out of a Credit Checker file or how to request credit if you are in a delinquent file . Likewise, the best way to get out of a bump caused by over-indebtedness is to pay off the outstanding debt and not make the biggest ball.

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