Personal Bankruptcy: Common Questions and Answers
What is personal bankruptcy in Spain?
Personal bankruptcy allows individuals to restructure or eliminate debts they cannot repay. It is governed by the Second Chance Law (Ley de Segunda Oportunidad), which provides a legal path to debt relief through restructuring or, in some cases, full debt forgiveness.
Who can file for personal bankruptcy?
Any individual (self-employed or not) who is insolvent can file if they meet these conditions:
- They cannot meet financial obligations.
- They have made a reasonable attempt to settle debts (e.g., through negotiations).
- They are acting in good faith (no fraud or intentional default).
What are the types of personal bankruptcy?
- Pre-bankruptcy (Preconcurso de Acreedores): The debtor informs the court that they are negotiating with creditors, granting them up to 4 months to reach an agreement before full bankruptcy is declared.
- Voluntary Bankruptcy (Concurso Voluntario): The debtor initiates bankruptcy proceedings when they can no longer meet financial obligations.
- Forced Bankruptcy (Concurso Necesario): Creditors request bankruptcy proceedings against a debtor who has not paid debts for more than 3 months.
What happens to personal debts in bankruptcy?
- Debts can be restructured through a repayment plan.
- Under the Second Chance Law, certain debts may be fully forgiven if conditions are met.
- Public debts (taxes, social security, child support, etc.) generally cannot be discharged.
Can I keep my assets in personal bankruptcy?
If liquidation occurs, assets (including property) may be sold to pay creditors.
Under the Second Chance Law, individuals may keep essential assets (such as their home) if they can continue mortgage payments and meet other legal conditions.
What is the Exoneration of Unsatisfied Liabilities (BEPI)?
The BEPI (Beneficio de Exoneración del Pasivo Insatisfecho) allows eligible individuals to erase unpaid debts after bankruptcy if:
- They acted in good faith and did not hide assets.
- They tried to settle debts before filing for bankruptcy.
- They demonstrate financial hardship.
How long does personal bankruptcy take?
A simplified process under the Second Chance Law takes 6-12 months. If disputes arise or creditors challenge the process, it can take longer.
How does personal bankruptcy affect my credit score?
A bankruptcy record can remain on credit reports for 5-10 years, limiting access to loans and financial products. After BEPI, individuals are legally free from past debts, but lenders may still consider their history when approving credit.