In Spanish we have an old saying that says “a bad arrangement is better than a good lawsuit”. Although lawyers surely do not agree with such a statement, it is true that judicial processes are usually long and expensive, in addition to the other problems that they may cause.
When we encounter a default, many questions arise. One of the most recurring is whether it is worth going to court to claim the debt, that the collar is worth more than the dog. To save time and money, we can resort to an extrajudicial payment agreement, a legal mechanism that considerably reduces the terms and expenses derived from the process.
Whether you are a creditor or a debtor, the out-of-court agreement interests you. But what exactly does it consist of? This is a legal mechanism prior to bankruptcy (in the case of companies), which can be used by both individuals and businessmen of all kinds (as long as the legal requirements for it are met) and through which the contracted debt and, what is essential, the interest in repaying it is shown.
In order to start the process, a series of requirements must be met. The main one is that the liabilities, that is, the debt contracted, do not exceed 5 million euros, a considerably high figure that allows the vast majority of debtors to be able to take advantage of this mechanism. Another requirement is to have more than two creditors and it is also essential not to have been convicted of financial crimes or have been involved in another out-of-court payment agreement or bankruptcy in the last 5 years.
Last year, a reform of the Bankruptcy Law applicable to both natural and legal persons was approved, with important developments that, in general terms, benefit debtors. One of the main regulations affected in this type of process is the Second Chance Law, in force since 2015, but which has gained special relevance since 2020, mainly due to the economic crisis caused by the pandemic.
The reform no longer considers it mandatory to reach an out-of-court payment agreement, which saves costs and deadlines, which may not exceed one year. It also allows individuals to keep their habitual residence and establish an alternative payment plan to pay off their debts or be exonerated from them.
When a company or individual goes through serious financial difficulties, it is important to take measures as quickly as possible to prevent the situation from becoming unsustainable and ending up declaring itself insolvent, with all that that implies. Reaching an out-of-court payment agreement is a way to improve the situation and reduce the debt in a more affordable way to ensure the viability of the company.
If, unfortunately, the situation cannot be resolved, the out-of-court payment agreement, although it is not mandatory under the new Bankruptcy Law, is a preliminary step that demonstrates the debtor's willingness to settle his outstanding payments, regardless of whether he can do so or not. . If this is not achieved, you could opt for the Second Chance Law as a last resort, a legal tool that allows you to start from scratch with the exoneration of all debts, as long as the established requirements are met.
In order to carry out an out-of-court payment agreement in a company, it is necessary to hire the services of a bankruptcy mediator, who will analyze the entire situation and propose a payment plan to creditors to try to avoid the bankruptcy declaration. But let us remember that this is an agreement, which must be fair and reasonable for both parties, which, at the same time, must be open to dialogue and flexible in order to reach a point of understanding. At this point, the figure of the mediator is essential, a professional experienced in this type of dispute who advises the debtor and the creditor in order to reach a mutually beneficial understanding.
