Spain Introduces New Scheme To Give Bankrupt Individuals A Second Chance
The Royal Decree-Law 1/2015 dated February 27, 2015 (the “RDL”) seeks to implement urgent measures to, among other things, reduce individual debtors’ financial burden.
The RDL was designed to give a second chance to an individual debtor and introduced a mechanism according to which such debtor may have his debts discharged if (i) he acts in good faith and (ii) he has previously liquidated all his assets in favour of his creditors (or his bankruptcy proceeding concluded due to insufficient assets). In addition, the RDL proposes flexible out-of-court payment arrangements for the individual debtor to repay his creditors.
Once the above mentioned criteria are met, the individual debtor may automatically have his outstanding debts discharged provided that he has paid (i) his secured creditors 90% of the fair value of the security, (ii) the debts of the insolvency estate (“créditos contra la masa”) in full, and (iii) at least 25% of the ordinary credits. Alternatively, provided that the debtor accepts a payment schedule over a 5-year period for certain debts, the debtor may remain provisionally exonerated from all of his debts. In order to obtain a full discharge, the debtor must pay his non-dischargeable debts during the 5-year period or make a “substantial effort in this regard”, which means that the debtor must devote at least half of the income he receives during this period to pay certain of his creditors.
Creditors of the individual debtor have not been left unprotected, however, as they may request a bankruptcy judge to revoke the benefit of the discharge in certain circumstances, such as when the debtor’s financial situation has improved or when the debtor fails to meet his payment obligations in accordance with the agreed-upon payment schedule.