Find out the news about the reform of the second chance law

• The second chance law (LSO) and the bankruptcy law have introduced new features that benefit citizens, individuals, self-employed workers and companies in bankruptcy proceedings.

The Law 25/2015, of July 28, on the second chance mechanism, reduction of the financial burden and other social measures, known as second chance law and the Law 22/2003, of July 9, Bankruptcy, modified by the Law 16/2022, of September 5, have introduced three novelties that benefit all citizens, individuals, self-employed workers and companies in bankruptcy, which have failed financially.

The main objective of the second chance law (hereinafter LSO) is that people have the possibility of canceling all their debts, disappearing from the delinquency files and obtaining financing again.

What are the main requirements?

The text of the law indicates the following requirements:

• Declare the state of current or imminent insolvency.
• Having two or more debts with different entities, whether banks, companies, the Treasury, individuals, suppliers or Social Security.
• Not be found guilty in the contest.
• The total debt obligation cannot exceed 5 million euros.
• Not having joined the LSO in the previous 10 years.
• Not having been convicted of economic crimes or document falsification in the previous 10 years.
• The good faith of the debtor at all times.

What happens in these cases with debts with the Tax Agency and Social Security?

In these scenarios, the following must be taken into account:

• Debts with the Tax and Social Security Agency are canceled for a maximum of 10,000 euros for each of them and independently.
• Payment plans may be made with the respective administration.
• If there are new debts, they are not counted.

What are the news?

These three new features speed up the application process and reduce costs for interested parties:

1. The figure of the notary is dispensed with.
2. The figure of the mediator is eliminated.
3. The time that the courts have set to conclude and grant the cancellation of debts with the LSO has been reduced, although it remains variable depending on the complexity of the file (from a few months to more than a year).

With these updates, the aim is to simplify the procedure and save costs during the application process for interested parties.

What is the procedure to request the LSO?

Once compliance with the requirements to be a beneficiary is verified, all the documentation needed to prove a situation of insolvency must be collected.

To do this, you must prepare the application with the help of a lawyer and present it to the Commercial Court and, thus, be able to begin the judicial phase. Three types of situations can occur:

• Exoneration without assets: this option is intended for those people who do not have assets to settle and meet their debts, so they are allowed to request their cancellation, without their assets being harmed.
• Exemption with payment plan: this alternative allows the debtor to protect their assets and home. After paying off part of your debts, you can take care of the rest through a 3 or 5-year payment plan.
• Exemption with liquidation: allows the debtor to eliminate all outstanding debts in exchange for liquidating all of his assets.