Personal Insolvency for Individuals and Business Debtors

Spanish insolvency law provides mechanisms through which an individual may seek a discharge whether the debts are personal in nature or originate from business or professional activities.

For insolvency purposes, the relevant status of the debtor does not necessarily depend solely on whether that person is currently carrying on a business.

An individual who is now employed or who has ceased trading may still have an insolvency substantially connected with previous business activities where a significant part of the liabilities arose from those activities.

Common situations include debts arising from:

• Previous self-employed activities.
• Personal guarantees given for company debts.
• Loans connected with a business or professional activity.
• The closure or failure of a business.
• Liabilities arising from a previous role as a director or shareholder.
• Business financing supported by personal guarantees.
• Tax or Social Security liabilities connected with an economic activity.

Correctly identifying the origin and nature of the liabilities is therefore
one of the first steps in our insolvency assessment.

Assessment Before Filing for Insolvency

Filing for insolvency should not be an automatic response to the accumulation of debt.

Before recommending proceedings, we carry out an individual assessment of the debtor’s financial and legal position.

We examine matters including:

• The identity of the creditors.
• The origin of each debt.
• The age and history of the liabilities.
• Existing court proceedings or enforcement actions.
• Personal guarantees and security interests.
• The debtor’s assets and property.
• Current income and financial circumstances.
• Tax and Social Security debts.
• Potential limitation issues affecting particular claims.
• Previous transactions involving the debtor’s assets.
• The statutory requirements for obtaining a discharge.

This analysis allows us to answer not only how an insolvency should be handled, but a more fundamental question:

whether insolvency proceedings should be commenced at that particular time.

Filing for Insolvency Is Not Always the Immediate Answer

Spain’s personal insolvency and debt discharge framework can provide an
effective solution to certain situations, but commencing formal insolvency
proceedings has legal consequences that should be assessed beforehand.

The position of each creditor and the potential effect of insolvency
proceedings on existing claims, enforcement actions and limitation periods should be considered as part of the overall strategy.

Depending on the circumstances, there may be legal or strategic reasons to
postpone an insolvency filing or to examine alternative approaches first.

For that reason, our work begins with a diagnosis of the debt rather than the
automatic preparation of an insolvency petition.

Documentation and Reconstruction of Liabilities

Personal insolvency proceedings require complete and reliable financial
information.

To assess a case properly, the debtor must be able to identify the creditors,
explain how the liabilities arose and provide sufficient documentation to
reconstruct their financial position.

Relevant documentation may include:

• Loan and financing agreements.
• Bank statements and banking records.
• Claims and correspondence from creditors.
• Court proceedings and enforcement documentation.
• Tax records.
• Social Security documentation.
• Deeds and guarantees.
• Corporate documentation.
• Information concerning assets and property.
• Records relating to previous business or professional activities.

The quality and completeness of the information provided directly affects our ability to carry out a reliable legal assessment.

For this reason, we take on cases where the debtor is able to cooperate fully
and where their financial and asset position can be properly reconstructed
and documented.

Personal Insolvency Proceedings in Spain

Where our preliminary assessment indicates that insolvency proceedings are appropriate, we prepare and conduct the relevant proceedings before the Spanish Commercial Courts.

Our representation covers the different stages of the insolvency process and,
where the statutory requirements are satisfied, the subsequent application
for the discharge of qualifying unsatisfied liabilities.

The objective is not merely to obtain a formal declaration of insolvency.
It is to use the mechanisms provided by Spanish insolvency law to achieve a
legally sustainable solution to the debtor’s financial situation.

Special Insolvency Procedure for Microenterprises

Where the requirements established in Book Three of the Spanish Insolvency Actbare met, we also act in the
special insolvency procedure for microenterprises.

This procedure has its own procedural framework and relies extensively on
electronic filing and processing.

EBAN Abogados has practical experience with the microenterprise procedure dating from the initial implementation of the electronic platform established for its operation, having handled proceedings since the early stages of the system.

This experience enables us to address both the substantive insolvency issues
and the particular procedural and technical requirements involved.

Discharge of Unsatisfied Liabilities

Spanish insolvency law allows an individual debtor, where the statutory
requirements are met, to obtain the discharge of certain unsatisfied
liabilities.

However, a discharge does not apply indiscriminately to every debt.

A proper assessment must determine:

• Which debts may qualify for discharge.
• Which liabilities are excluded from discharge or subject to statutory
  limitations.
• The treatment of public-law debts.
• The existence and effect of guarantees and security interests.
• The appropriate route to discharge.
• The debtor’s assets.
• The debtor’s previous conduct.
• Compliance with the applicable statutory requirements.

Any reliable assessment of the likely outcome of a debt discharge application therefore requires an individual review of the debtor’s liabilities.

Good Faith and the Debtor’s Conduct

Access to debt discharge under Spanish insolvency law is subject to statutory
requirements concerning the debtor and their conduct.

The debtor’s actions before and during insolvency proceedings can therefore
be decisive.

Before accepting a case, we examine relevant transactions carried out by the
debtor, particularly where there have been transfers of assets, movements of
funds, financing obtained shortly before insolvency or other transactions that may require explanation during the proceedings.

We do not pursue applications for discharge where the known circumstances are incompatible with the applicable statutory requirements or where significantbfinancial transactions cannot be explained consistently and supported by
appropriate documentation.

Transparency towards creditors, the court and the debtor’s own legal advisersbis essential to the proper conduct of insolvency proceedings.

A Debt Discharge Does Not Immediately Erase Financial History

Obtaining a discharge can have significant legal consequences for the debtor, but it is important to distinguish between the legal treatment of discharged debts and the debtor’s subsequent financial position.

Spanish insolvency proceedings are subject to statutory publicity requirements, and certain decisions may be recorded in the Spanish Public Insolvency Register (Registro Público Concursal).

Furthermore, obtaining a discharge does not necessarily mean that banks and other financial institutions will immediately disregard the applicant’s
previous financial history when making future lending or risk decisions.

We therefore do not present debt discharge as an automatic way to eliminate liabilities and immediately begin a new cycle of borrowing.

Its purpose is to provide a legal solution to a genuine situation of insolvency.

An Insolvency Decision, Not a Financial Product

A personal insolvency case should not begin with a promise that debts will
simply disappear.

It should begin with questions.

What is the origin of the liabilities? How old are the debts? Are there
guarantees or security interests? Are enforcement proceedings already underway?
What assets does the debtor own? What transactions took place before insolvency?
Which debts may actually qualify for discharge? Is filing for insolvency
appropriate now?

At EBAN Abogados, this analysis comes first.

Where insolvency proceedings and a discharge provide the appropriate solution, we conduct the case through to its conclusion. Where there are legal or strategic reasons not to commence proceedings, our role is equally to identify and explain them.

The objective is not to file an insolvency case. The objective is to identify the appropriate legal response to a situation of insolvency.