Second Chance Law: pros and cons

We are going to explain the pros and cons of the second chance law. This legal mechanism has so far helped thousands of people in Spain, either to renegotiate their debts, or even to eliminate a good part of them.

If you are in a difficult financial situation and owe money to several creditors, this may be your lifeline. If you have questions or need legal help, you can contact our law firm by telephone or by sending a contact form. You will have the support of lawyers with expertise in Commercial Law.

What is the Second Chance Law?

The Second Chance Law in Spain is a legal mechanism created to offer individuals, either with or without business activity, a way to renegotiate their debts or eliminate part of them. This process is designed for those facing a complicated financial situation, allowing them to overcome serious insolvency or bankruptcy.

In simple terms, the Second Chance Act provides the possibility of a fresh financial start. This is possible for those who have proven to be good payers in the past, but are currently facing financial difficulties, and need to pay off their debts by negotiating new terms with creditors. This mechanism seeks to balance the interests of debtors and creditors by offering a legal and structured solution to address situations of over-indebtedness or insolvency.

Advantages of the Second Chance Law

The pros of the Second Chance Law are very favourable for those people who need to renegotiate their debts and even eliminate them in order to have a more comfortable future. In this list we summarise the main benefits.

1. Cancellation of debts: The main advantage lies in the possibility of paying off debts in full or in part, giving people a second financial chance.
2. New Beginnings: It allows debtors to start a new phase free of past financial burdens by eliminating debts they cannot afford.
3. Protection of Essential Goods: The law provides for the protection of property essential for personal or professional development, such as housing or work tools.
4. Suspension of Payments: During the process, debt payments and monthly instalments are suspended, providing immediate financial relief.
5. Paralysation of seizures and executions: It stops garnishments and foreclosures, providing debtors with breathing space in critical situations.

Disadvantages of the Second Chance Law

It is a law that serves as a salvation for many people, but it has some disadvantages, for example:

1. Liquidation of assets: In the case of opting for full cancellation of debts, this involves the complete liquidation of the debtor's assets, including housing and other valuable assets.
2. Restrictions on public debt: Although the law allows the cancellation of public debts, there are limits. For example, a maximum of 10,000 euros with the Social Security and another 10,000 euros with the tax authorities.
3. Delinquency register: Although the debtor is removed from the delinquency registers after the process, during the process, the debtor's situation may affect his or her credit history.
4. 5-year review: There is a possibility to review the debtor's case up to 5 years after cancellation, which implies an evaluation period.
5. Requirements and conditions: Certain requirements must be met. Such as proving insolvency, acting in good faith and not having been in good faith during specific periods.

If you have any doubts, contact us today, we will attend you personally in our office in Marbella.

What are the eligibility requirements for the LSO?

We have mentioned some of these requirements throughout the article. For the sake of practicality, we will summarise them in the following list:

1. Justification of insolvency: It is necessary to prove convincingly that the debtor is insolvent and unable to pay his debts.
2. Good faith in debts: The debts must have been contracted ethically and in good faith. There must be no history of convictions for financial or property crimes within the last ten years.
3. Total debt limit: The applicant's total debt may not exceed EUR 5 million.
4. No previous application: You cannot have used the Second Chance Law in the ten years prior to the current process. Nor can you have been convicted of economic crimes in the last decade.
5. No conviction in insolvency proceedings: Nor can you have been found guilty in an insolvency proceeding within the last ten years.
6. Bona fide debtor: The debtor is expected to act in good faith. That is, to avoid any fraudulent actions or actions that may call into question his or her financial ethics.
7. Disposal of non-essential goods: In order to benefit from the law, the debtor must be willing to assign all non-essential goods and assets, excluding those necessary for his professional activity.
8. Debts owed to at least two creditors: It is necessary to have debts with at least two different creditors, which can be banks, financial institutions, suppliers, among others.

All of these are essential requirements in order to benefit from this legal mechanism and demonstrate the good faith of the application. If you want to apply and need legal advice, contact our law firm today.