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Insolvency of individuals, bankruptcy: check if you are elegible for debt relief
Do you want to know more about the insolvency of individuals Act?
The Spanish insolvency of individuals’ Act or Bankruptcy was passed on 2015. Since then debtors in good faith can get a debt relief.
Would you like to know how the procedure goes?
Extra court step: Individual Voluntary Arrangements
First of all the debtor should try to reach an Individual Voluntary Arrangements with all of his or her creditors: banks, financial providers, private debtors, etc. Only public debts such as Social Security and tax ones are left out of these arrangements. In order to do so a bankrupt mediator or official receiver will be appointed. He or she will draw a payment plan and viability proposal to the creditors. For instance: if a debtor owes a total of €50,000.00 and have an income of €1,500.00. The debtor can propose to pay €200.00 per month for 10 years. This way the debtor will pay off 48% of the total debt and he will get a debt relief of 52% if the creditors accept the proposal.
Consecutive bankruptcy procedure
If the creditors do not accept the debtor’s proposal, then a court procedure starts and all the possible debtor’s properties and assets are liquidated to settle the debts. If there are no properties or assets, then the procedure finishes straight away.
Can I lose my home here?
There are some exceptions to the liquidation procedure. For example: if the debtor’s home mortgage due is higher than the market price (#there is no equity?) then you can keep your home. There are two main reasons: (i) My home is my castle. The affection value of your home. Not just your home but the neighbourhood, your social environment, etc. And (ii) the letting market in the debtor’s home area could be higher than the mortgage payment. For example: the debtor might be paying €500.00 a month for his or her mortgage and to let a similar house costs €800.00. Then it makes not much sense to liquidate the debtor’s home.
Once the eventual liquidation is over then it is time to apply for the debt relief. To be granted this Benefit the debtor must be a good faith debtor. This means among other requirements, that the debtor must not have been convicted in the previous 10 years of an offence with regards to tax, Social Security, fraud, and similar ones.
The debt relief will be definitive when at least the debts that cannot be relieved by law (tax and Social Security for instance) are settled or they do not exist. Until then, the debt relief will be provisional. Whilst some of the non-relievable debts are still pending, then the debtor will have to make a payment plan of 5 years to pay those debts with no interests. Once this is done, the debt relief will be definitive.
Can I lose my debt relief already granted?
Yes. But only for the reasons stated by the law.
If the debt relief is definitive there is only one reason to lose it which is hiding assets to the creditors during the procedure.
If the debt relief is provisional there are some other reasons. The debtor will lose the debt relief benefit if during the payment plan execution:
- Commits an offence which bans the access to the debt relief,
- Breaches the payment plan,
- Wins the lottery or becomes an inheritance’s beneficiary providing that the wealth increase allows them to settle all the relieved debts easily.
So, would you like to know if you are eligible for a debt relief?
You can check easily by filling in this questionnarire and we will respond to you as soon as possible.
Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it.
Please, note that this is general information. This is not specific legal advice. It is advisable to seek legal advice for any specific legal issue.
And remember, take care and stay alert.