More and more individuals and self-employed workers are taking advantage of the Second Chance law. Owners of bars and businesses affected by the pandemic, unemployed workers who cannot pay their loans, small business owners unable to return ICO guarantees and families who are still suffering the effects of the real estate crisis.
Choking on debt, they all resort to this mechanism provided for in the bankruptcy law with the aim of being exonerated from repaying the debt as long as the judge confirms that they have not acted in bad faith. With this mechanism, families and the self-employed have the opportunity to cancel their liabilities – which usually ranges between 5,000 and 25,000 euros, although in some cases it can exceed one million euros – and have the opportunity to start over as if nothing had happened. .
The mechanism is not new. It was established in 2015, but in the last year it has experienced a significant increase. According to data from the College of Registrars of Spain, bankruptcies of natural persons – which include these procedures – have practically tripled, going from 1,700 to 4,680 if the results of the second quarter of 2022 are compared with those of the same period. of 2023. The data from the General Council of the Judiciary point in the same line, and even ensure that the increase in competitions for natural persons has exceeded the pvid levels, going from 2,544 in 2019 to 9,669 in 2022 as a whole.
“The coronavirus pandemic has affected families and small business owners, but the increase in bankruptcy proceedings involving individuals is mainly due to the reform of the bankruptcy law,” says José María Fernández Seijo, a commercial judge in Barcelona.
The new law, which came into force in September 2022, has simplified the procedures and reduced the deadlines to obtain the exemption. For a year now, debtors can go directly to the judge without the obligation to first have tried to reach an agreement with creditors through a mediator. Furthermore, bankruptcies without assets – in which the debtor has no assets – do not require the appointment of a bankruptcy administrator, so the process is even simpler (which is why it is called express bankruptcy).
Due to these legal modifications, the magistrate assures that "the volume of work has increased significantly: for every two or three corporate bankruptcy proceedings we have to take on a dozen bankruptcy proceedings involving individuals," says Fernández Seijo, who recalls that the increase It already began to be noticed months before the reform. Then, some affected people wanted to benefit at the last minute from the exemption from the return of public credit (Treasury, Social Security), which after the reform of the law has a limit of 10,000 euros. Furthermore, the increase in the workload in the courts has another reason: the new law establishes that commercial courts must take on bankruptcy proceedings from non-business individuals, matters that previously fell to the courts of first instance.
Another group affected by the increase in bankruptcy proceedings involving individuals is bankruptcy administrators. “Since the reform, judges are sending us more and more cases linked to individuals. Although they are simple to process, we have had to increase efforts and resources to manage them,” comment Pere Vilella, Ignasi Figueras and Eduard Milà, from the firm FTI Consulting.
The Spanish association of bankruptcy administrators Aspac considers that the legislator has “finally” given impetus to a procedure that until now was of little relevance. “More and more consumers and businessmen are aware that this legal tool exists, in part thanks to advertisements from specialized law firms. Taking into account the experience of other countries, especially the United States, where this figure was invented, we think that this type of contest will continue to rise in the coming years and that this year's rise will not remain an anecdote," he points out. President Diego Comendador together with Jordi Castells, responsible for Catalonia.
However, the association also warns that the new law encourages roguery in bankruptcy proceedings, since there is no obligation to appoint a bankruptcy administrator, there is no control over the actions of debtors, especially over possible fraud. that they can commit during the weeks before the declaration of the insolvency.
Along the same lines, there is growing concern among commercial judges. Should the courts increase controls in the absence of administrators in bankruptcy proceedings? A part of the doctrine considers that yes, the supervision of debtors should be increased so as not to grant forgiveness automatically. And sometimes, this is granted on the basis of imprecise financial information provided by the debtor himself. However, another part of the doctrine considers that judges should not increase controls and stick to strict compliance with the law. According to the regulations, debtors enjoy the presumption of good faith and creditors – including banks – have the possibility of opposing and requiring the appointment of a bankruptcy administrator to supervise the actions of the debtor.
Under this divided criterion, the Spanish commercial courts work daily granting, in the vast majority of cases, great relief for the debtor.
