What is the Second Chance Law?

The Second Chance Law permits insolvent persons, whether individuals or those who are self-employed, to renegotiate their debt or have it forgiven. The goal of this legal proceeding is to give debtors a chance to start fresh and avoid perpetual insolvency while to the extent possible preserve the collection of the creditors. 

Who can take advantage of the Second Chance Law?

The Second Chance Law is for natural persons whether freelancers or consumers who are facing great financial hardship as a result of their debt. This applies to both persons who are currently insolvent or who will become imminently insolvent, meaning they are aware that they will soon be unable to keep up their financial obligations. 

Who is eligible under the Second Chance Law?

In order to avail oneself of this law, the debtors must meet certain criteria. 

"Good-faith" Debtor

The main requirement is that the person seeking relief be considered a "good faith" debtor, meaning that the bankruptcy was not their fault. This means the debtor cannot have done anything to aggravate their situation of insolvency. Negligent acts or providing false information will also be considered acts of bad-faith. 

Financially Insolvent

The debtor must demonstrate that he is actually insolvent - meaning that he does not have the assets to cover his debt.

Indebted to More than One Creditor 

Another main requirement is that the debtor owes money to more than one creditor. The law requires that money be owned by at least two different entities, however there is no maximum number. 

No Punishable Offenses

The debtor cannot have been convicted of any social, economic, or property crimes in the last 10 years. This includes for example, being found guilty by institutions such as Social Security or the Ministry of Finance. 

Taken advantage of the Law Previously 

The debtor cannot have taken advantage of this law within the past 5 years. If the debtor has previously taken advantage of the law and successfully completed a payment plan, then this number is reduced to 2 years instead of 5. 

What debts can be cancelled? 

The Second Chance law can exonerate any debt that is not mentioned in article 489.1 of the Bankruptcy law. 

Examples of some of the debts that can be cancelled include: 

• Loans 
• Credit card debt
• Debt owed to the Ministry of Finance or Social Security. Debts owed to public offices may only be forgiven up to €10.000 for each entity

Among the debts that cannot be cancelled are those related to: 

• Non-contractual civil financial obligations for death or personal injury 
• Worker`s compensation or sick leave
• Civil fines
• Secured debt, where the debtor has put up an asset as collateral for any part of the debt (whether principal, interest, or something else)

Can mortgage debt be forgiven? 

As discussed above, it is not possible to cancel any debt that has been secured. Thus, debt related to mortgage payments cannot be exonerated as the mortgaged property serves as collateral. 

However, once the property has been repossessed, any remaining debt that was not covered by the value of the property may be exonerated by the Second Chance Law. 

Thanks to reforms in the Bankruptcy Law of September 2022, debtors have the option to devise a payment plan to repay their mortgage debt rather than lose their homes. This option gives debtors the chance to repay part of the non-forgivable and forgivable debt for 5 years without interest.

The Second Chance Law establishes limits to the responsibilities of debtors under Article 1911 of the Civil Code, which previously required debtors to fulfill all their present and future financial obligations. 

Do you need legal advice related to the Second Chance Law? 

If you would like to avail yourself of the Second Chance Law or learn more about the procedure, please contact us. At Gentile Law, our experts in tax law can provide you with the advice that you need and guide you throughout the process.