Second Chance Law in Spain 2025: Who Can Apply and Cancel Debts

Spain's Second Chance Law (Law 25/2015, reformed by Law 16/2022) allows individuals and self-employed workers drowning in unpayable debts to get a genuine fresh financial start through the formal cancellation of their debts — including, under the new reform, debts with the Tax Authority and Social Security.

Who Can Apply?

Any individual (private citizen or self-employed) who meets three criteria: (1) they are insolvent or imminently insolvent; (2) they acted in good faith (no fraud, no deliberate asset hiding); (3) they have not obtained the debt exemption (BEPI) in the last 5 years. Companies and corporations cannot use this mechanism — they must file traditional insolvency proceedings.

The Good Faith Requirement in Practice

Good faith is where most applications succeed or fail. The court examines the debtor's conduct before and during the insolvency: whether assets were transferred to relatives or third parties once the debts became unpayable, whether information was concealed from creditors or from the court, and whether the insolvency was deliberately caused or aggravated. A debtor who simply borrowed too much, lost a job or saw a business fail has nothing to fear from this test; one who organised their own insolvency does.

Because the court's assessment depends entirely on the documentation submitted, transparency from the very first filing is the single most important factor in these proceedings.

What Debts Are Cancelled?

• Credit card and personal loans
• Residual mortgage debt (the amount not covered by the property after auction)
• Business debts including to suppliers (for self-employed)
• Debts to the Tax Authority and Social Security (limited, new since 2022)
• Personal guarantees given on business debts

The Process Step by Step

The process begins with an out-of-court mediation attempt, mandatory before judicial proceedings. If this fails, a consecutive insolvency proceeding is opened. Once assets are liquidated (if any), the debtor applies for the BEPI — the key document that results in debt cancellation. The judge then grants or denies the exemption based on good faith criteria.

Preparing the Application

Before filing, the debtor needs a complete picture of their financial situation: a list of all creditors and amounts owed, an inventory of assets, proof of income and a coherent explanation of how the insolvency arose. Incomplete or inconsistent documentation is the most common cause of delays and of challenges by creditors. It is also the moment to assess which debts fall within the exemption and which — such as the limited treatment of public debts — require specific planning.

What the Fresh Start Means

Once the exemption is granted, the cancelled debts cease to be enforceable: creditors can no longer sue, seize wages or keep those debts alive in any form. For a self-employed worker this means being able to invoice, open accounts and rebuild a business without the permanent threat of seizures. The mechanism exists precisely because perpetual debt helps nobody — not even creditors, who recover more from a debtor who can work and earn openly than from one pushed into the informal economy.

Why Legal Strategy Matters

Although the law is designed for individuals, the proceedings are technical: deadlines, documentation and the good-faith assessment leave little room for improvisation. The order in which assets are liquidated, the way the application explains the origin of the insolvency and the response to creditor objections all influence the outcome. Specialist advice from the outset — ideally before the situation becomes irreversible — significantly improves the prospects of obtaining the BEPI at the first attempt.