Declaring insolvency in Spain, according to article 2 of Law 22/2003, means that a natural person cannot pay their debts. Of course, to reach this point, the possibility of settling said payment commitments must be completely ruled out. This, in practice, means that it is not so easy to declare insolvency, but if it is possible, it opens the door for the subject to take advantage of the Second Chance Law and cancel their debts.
In the first place, it is necessary to define the concept: insolvency is a patrimonial state in which the debtor is not able to meet his obligations. Unlike a defaulter, the insolvent person is not able to pay his debts even if he wants to, since he does not have liquidity, nor can he access credit to clear them.
In order to declare insolvency, a series of requirements must be met, since not everyone can do so, even if they cannot pay their debts. The first condition is not having liquidity of assets of any kind that can be used to pay the debt. The second is not to exceed 5 million euros of indebtedness. Third, you must have tried to pay off the debt by every possible means.
On the other hand, you have to prove to the court that you cannot meet these obligations. In addition, you cannot access the declaration of insolvency if you have previously been found guilty in a bankruptcy or if you have committed some type of crime with the Treasury or Social Security. Finally, you cannot have a criminal record or have resorted to the Second Chance Law in the last decade.
Once you are clear about what is meant by being insolvent and the two types of insolvency that exist, then you can begin the process to declare yourself as such. The process can be somewhat complex, so it is advisable to have the advice of experts in the field.
The starting point for insolvency to be recognized is to try to negotiate with creditors through an out-of-court process. This step is always necessary because the debtor could reach agreements and debt renegotiations that avoid having to open a more expensive and time-consuming legal process. Thus, the first thing would be to meet with the bank or any other type of creditor to propose an affordable plan for the payment of the debt.
The second step has to do with the first since, if an agreement is not reached with the creditors or the payments cannot be met in any way, then a judicial phase would begin to cancel the debts. In this process, the first step is to go to a Commercial Court and present the pertinent declaration of insolvency together with the documentation that effectively demonstrates that the payment of the debts cannot be assumed.
Later, the judge will be in charge of assessing and carefully studying the situation to verify if, in fact, the person who has presented the declaration of insolvency is and can request the cancellation of the debts that he has contracted. At this point you have to know that not all debts can be canceled by the judge. Thus, public debts with the Administration, depending on the case, and those derived from not being able to pay child support or a former partner are more complicated to cancel in full.
In a situation of insolvency, the creditors will request the seizure of the debtor's assets -vehicles, homes, jewellery...- to settle the debts. On the other hand, another of the serious difficulties that can arise is that of a negative credit history. This will make it difficult for the debtor to access any type of loan, greatly limiting his financial possibilities.
On the other hand, it must also be taken into account that the declaration of insolvency does not mean that the debtor's obligation to pay the debt disappears. However, if after the declaration of insolvency the debtor manages to benefit from the Second Chance Law, there is the possibility that part of the debt will be forgiven or even completely forgiven.
In the event that the debtor does not have assets in his name or recognized income, such as a salary, he will avoid the seizure. However, this does not mean that the indebted person will not have difficulties. In the event that in the future he acquires any property in his own name, it will be seized.
The first thing to know is that there are two ways to declare bankruptcy. The first is known as current insolvency and is one in which there is no capacity to pay current debts.
On the other hand, imminent insolvency can be declared, which is the one that anticipates the current insolvency. In other words, in this second case, the person would warn that, in the very near future, he will not be able to pay his obligations. In both cases, you can resort to the Second Chance Law.
