Spain: Residual debt discharge for natural persons

The residual debt discharge (RDD) was introduced in 2015 as an exception from the principle of general asset liability of the debtor in the insolvency code. Through this procedure, natural persons (both entrepreneurs and consumers) can be discharged from the payment of debts, which they could not settle during insolvency proceedings, if they adhere to certain specifications.

In order to be able to benefit from the RDD in Spain, the debtor must have been declared insolvent in Spain and the insolvency proceedings must have ended, either by liquidation or due to a lack of assets. In order to enable the declaration of insolvency in Spain, the main focus of interest of the debtor must be in Spain, i.e. in the case of a consumer, this must be the usual place of residence, or in the case of an individual entrepreneur, this must be the main establishment.

The RDD can only be granted if there is no case of a so-called culpable insolvency (e.g. because the debtor does not file for the opening of insolvency proceedings within two months after becoming aware of the insolvency).

Two alternatives

The insolvency code envisages two alternatives for the request of RDD.

The first alternative is intended for insolvency proceedings in which debts incumbent on the assets and privileged insolvency claims have been satisfied. In these cases, the residual debt discharge means that simple and subordinated, non-settled insolvency claims (including liabilities at the tax office and social insurance) are deleted without requiring a payment plan. For this, it is necessary for the debtor to have settled at least 25% of the simple insolvency claims (the last point is not required if an out-of-court payment plan has been decided or the debtor has offered it formally).

The second alternative is intended in all other situations. In these cases, simple and subordinated, non-settled insolvency claims are deleted, and any remaining claims (including debts incumbent on the assets and non-settled, privileged insolvency claims) will be subject to a payment plan proposed by the debtor and approved by the court. This alternative requires that the debtor has agreed to an out-of-court payment plan and has offered it formally, before the declaration of insolvency. He must satisfy the debts incumbent on the assets and the unsatisfied, privileged insolvency claims within five years after the end of the insolvency proceedings, whereby no interest is incurred for this time. Liabilities at the tax office, social insurance and for maintenance are not deleted, but included in the payment plan.

The RDD is a real second chance for the person concerned, but in situations where insolvency is imminent, it is particularly important to heed the strict deadlines in order to be able to benefit from the procedure.

Authors: Carlos Fernández & Unai Mieza