How Self-Employed Debts Can Be Forgiven With The Second Chance Law

Due to the economic crisis generated by the coronavirus pandemic, the self-employed have encountered many difficulties in carrying out their businesses. The most serious cases are those of professionals who have not been able to continue drowning in debt. But for some of these people there might still be one last nail burning.

The key lies in the so-called Second Chance Law , which was drafted in 2015 with the aim of reaching out to those professionals who, after several years of crisis, saw their businesses being lost due to the accumulation of debts that were very difficult to pay. due to lack of resources.

Thus, to ‘rescue’ these professionals and, incidentally, encourage their return to the labor market, this mechanism was created by which it is contemplated that “a natural person, despite a business or personal economic failure, has the possibility of get your life back on track and even risk new initiatives , without having to drag indefinitely a slab of debt that you will never be able to satisfy. “

The Second Chance Law, regulated through Royal Decree-Law 1/2015, of February 27 and Law 25/2015, of July 28 , also has the objectives of discouraging the underground economy and promoting business culture.

The main characteristic of this mechanism is that, after a declaration of insolvency in a bankruptcy, the forgiveness of the debts (or a part) of the professional is contemplated , provided that they are less than five million euros and that it is proven that there is no possibility to pay off those debts. In addition, and not least, you have to show good faith . That is, not taking advantage of this law to avoid paying accumulated debts and starting a new business irresponsibly.

To demonstrate good faith, the debtor needs to meet four specific conditions:

-Not be found guilty in the contest.

-Have attempted (or entered into) an out-of-court payment agreement.

-Not having been convicted in a final judgment for a crime against the Public Treasury or the rights of workers in the last 10 years.

-Have paid at least the credits against the estate, the privileged bankruptcy credits and 25% of the ordinary credits if there was no payment agreement.

If all the conditions listed above are met, the professional may avail himself of this second-chance mechanism. However, you should know that there are debts that cannot be forgiven : this is the case of public law credits and alimony (although in this case there is already jurisprudence that also exempts the payment of these amounts).

When he is in one of these cases, the professional will have to prepare an agreed payment schedule through which, within a period of five years, he will have to catch up with those creditors. And, in parallel, you will have to look askance at the rest of the creditors, since they can demand the payment of the debts if the debtor fails to comply with his requirement of good faith or with his schedule of payment terms, receives undeclared income or improves substantially your financial situation.