This is how the Second Chance Law will remain after the bankruptcy reform

At the beginning of July, the new text of the Bankruptcy Law was approved in Congress.

Thomas Osborne
Thomas Osborne
19 July 2022 Tuesday 05:04
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This is how the Second Chance Law will remain after the bankruptcy reform

At the beginning of July, the new text of the Bankruptcy Law was approved in Congress. The reform is part of the Recovery, Transformation and Resilience Plan, and what it aims to do is update the Bankruptcy Law of 2003. In the absence of approval in the Senate, the revised text has brought certain novelties to the Second Chance Law (LSO ).

The debtor may choose between exemption through the liquidation of the active mass or through a payment plan. Depending on the situation of the debtor, he may decide if he wants the entire debt to be forgiven through the liquidation of all his assets, rights and income or through a payment plan.

This is where the main novelty lies, since the debtor, if they so wish, will not have to be left without their habitual residence or without the assets and rights necessary to carry out their work activity. This means that:

It will not be necessary to liquidate the debtor's assets to access the debt exoneration

The New LSO, if it ends up being approved as it is, would allow the possibility of exoneration without prior liquidation of the debtor's assets. Thus, the debtor, as long as he meets the requirements, will be able to maintain his habitual residence. Before, the debtor had to liquidate all his assets to be considered in good faith and to be able to exonerate what was left of his debt. Now he won't have to do it anymore: he can keep his house.

In addition, if the debtor were self-employed, thanks to the novelty introduced, he could continue with his activity and with the assets and rights necessary for it. Again, it should be noted that, previously, in most cases the debtor had to settle all this.

The payment plan is reduced from 5 to 3 years

Another outstanding measure is that the creditor payment plan is reduced from five to three years. The possibility of extending it to five years will continue to exist if the debtor's habitual residence is not sold or if the creditors make concessions or more burdensome efforts in favor of the debtor or when their risk of recovery is greater.

The requirements under which the debtor can request the LSO are expanded and relaxed

If the reform is approved in the Senate, the requirements to request the LSO could be relaxed. For example, consumers whose debts do not come from business activities could be added to the LSO request. In other words, any person, whether natural, physical or legal, could request the exoneration of the debt that he cannot pay, regardless of whether that debt is derived from his business activities or not.

The requirement to enjoy the exemption is also eliminated, provided that the debtor has not rejected job offers in the four years prior to the declaration of insolvency. A prior negotiation with the creditors, the so-called "out-of-court payment agreement", will not be a sine qua non condition either.

In the new text of the Bankruptcy Law, the Government contemplates that the debtor (self-employed or SME) can exonerate up to 20,000 euros of public debt. This amount would be shared between the Treasury and Social Security, that is: 10,000 euros with the Tax Agency, 10,000 euros with the SS.SS.

However, the exoneration of public law debts, in addition to being subject to certain limits, may only occur in the first exoneration of the unsatisfied liability, not in successive ones.

The measure by which a debt may be exonerated due to illness of one's own or of a family member or spouse remains in force

Bankruptcy law allows a debt to be exonerated in the event that the Judge finds that the breach is due to accident or serious illness, regardless of whether this situation is that of the debtor or that of a family member.