Self-employed workers who close a failed business in Spain often carry a legacy of debts that can outlast the business by years: unpaid [Social Security](/en/glossary/social-security) contributions (RETA), [VAT](/en/glossary/vat-spain) and [IRPF](/en/glossary/income-tax) arrears with the AEAT, bank loans taken on to fund the business, and supplier debts. Until Spain's [Second Chance Law](/en/legal/second-chance-law/) (Ley 25/2015) was strengthened by Ley 16/2022, these debts followed the autónomo indefinitely — attached to wages from any future employment, blocking new credit, and preventing any genuine fresh start.
The legal framework for self-employed debtors
The Texto Refundido de la Ley Concursal (TRLC) — the consolidated insolvency statute — provides the framework for both individual and self-employed insolvency. Key provisions:
Art. 2 TRLC: defines insolvency as the state where the debtor cannot meet payment obligations regularly. Applies to natural persons with or without business activity.
Art. 487 TRLC: the good faith conditions for EPI eligibility. Applies identically to employed and self-employed debtors.
Art. 491 TRLC: the thresholds for public debts (TGSS, AEAT) that can be discharged.
Ley 16/2022: the most significant reform, transposing EU Directive 2019/1023. For self-employed debtors, the main improvements were: introduction of the PAED (Plan de Reestructuración Extrajudicial de Deudas) as a universal pre-court mechanism; extension of public debt discharge thresholds; and clarification that the procedure is open to any natural person regardless of whether they have ceased activity.
STS 260/2026: the Supreme Court ruling confirming that TGSS surcharges and late-payment interest are subordinate creditor claims — fully dischargeable — not ordinary public credits. This ruling substantially changed the calculus for self-employed debtors with large Social Security surcharge debts.
The public debt discharge thresholds in detail
The most frequent question from self-employed debtors concerns TGSS and AEAT debts — because these creditors have enforcement powers (direct deductions from bank accounts, administrative embargo) that private creditors lack.
TGSS (Social Security) debt
| Debt type | Art. 491 TRLC treatment | Post-STS 260/2026 treatment |
|---|---|---|
| Ordinary contribution (cuota) | Dischargeable up to €10,000 | Confirmed |
| Surcharge (recargo) | Subordinate → fully dischargeable | Confirmed |
| Late-payment interest | Subordinate → fully dischargeable | Confirmed |
| Amounts above €10,000 (ordinary) | Survive EPI | Unchanged |
Example: autónomo with €25,000 TGSS debt total:
- €18,000 ordinary contributions (cuota)
- €5,000 surcharges
- €2,000 late-payment interest
EPI discharges: €10,000 (ordinary cap) + €5,000 (surcharges, subordinate) + €2,000 (interest, subordinate) = €17,000 discharged. €8,000 ordinary debt survives.
AEAT (Tax Authority) debt
| Debt type | Art. 491 TRLC treatment |
|---|---|
| Ordinary tax debt (VAT, IRPF, IS) | Dischargeable up to €10,000 |
| Tax penalties | Subordinate → fully dischargeable |
| Surcharges and late-payment interest | Subordinate → fully dischargeable |
| Amounts above €10,000 (ordinary tax) | Survive EPI |
Important: if there are unfiled tax returns, the AEAT debt may be higher than expected because the AEAT will have issued provisional assessments. Part of the pre-procedure work is compiling the actual AEAT debt position and, if possible, filing outstanding returns to crystallise the correct amount before the PAED.
Strategic timing considerations for autónomos
Deregistration from RETA
The date you deregister from the autónomo social security scheme does not affect your eligibility for the EPI on past debts. However, it affects:
Contribution record: pension entitlements are based on total contribution years. If you are 3 months short of a full year’s credit before a pension milestone, it may be worth maintaining registration for those months. The monthly RETA cost (approximately €200–600 depending on your income bracket) versus the pension entitlement difference should be calculated.
New TGSS debt: every month you remain registered generates a new RETA contribution obligation. If you are already insolvent and the business is not generating income, continuing registration creates new public debt that complicates the insolvency without benefit.
Recommendation: coordinate deregistration date with your Second Chance lawyer before initiating the PAED. The optimal date varies by individual circumstances.
Outstanding VAT and IRPF returns
An autónomo with unfiled quarterly returns faces two risks: (1) the AEAT may issue provisional assessments (estimated liabilities) that differ from actual liabilities; (2) unfiled returns may be treated as bad faith evidence in the EPI assessment. Filing all outstanding returns before the PAED, even if the result shows tax owed that you cannot pay, demonstrates good faith and crystallises the actual debt position.
Business equipment and tools
Professional equipment used in the business activity has some protection under insolvency law (tools of trade are partially exempt from liquidation in Spain under Art. 605 LEC, though this has complex interaction with TRLC). Document all equipment and its business use for the administrator.
The procedure step by step for an autónomo
Step 1: Asset and liability mapping Document all assets: equipment, stock, client receivables, property, vehicles. Document all debts: TGSS position (request official debt certificate), AEAT position (request certificate of tax obligations — certificado de deudas), bank loans, supplier invoices, lease obligations, personal guarantees.
Step 2: Good faith check Your lawyer reviews Art. 487 TRLC compliance: no prior EPI or insolvency offences in the last 10 years, no continuing reckless debt accumulation.
Step 3: PAED (Extrajudicial Debt Restructuring Plan) File the PAED application with a notary or Mercantile Registry for appointment of an insolvency mediator. The mediator convenes creditors — banks, TGSS, AEAT, suppliers. Attempt to reach a restructuring agreement. In practice, TGSS and AEAT rarely agree to significant reductions in the extrajudicial phase, but banks and commercial creditors sometimes negotiate. The PAED phase typically concludes in 2–4 months.
Step 4: Court insolvency (concurso consecutivo) When the PAED fails (which is common), the notary certifies failure and the court opens the consecutive insolvency. An insolvency administrator is appointed. The administrator inventories assets, classifies creditor claims, and manages any asset liquidation.
Step 5: Asset liquidation Equipment and business assets with value are sold. The proceeds are distributed to creditors according to priority. Most self-employed debtors have limited assets — the liquidation phase is brief.
Step 6: EPI application The debtor applies for the EPI. The court reviews good faith, the asset liquidation, and the compliance with TRLC thresholds. If granted (with or without a payment plan), dischargeable debts are extinguished permanently.
The real cost of waiting
The single most damaging decision a failing autónomo can make is continuing to trade — incurring new supplier debts, new RETA contributions, new VAT and IRPF obligations — in the hope that things will turn around. Every month of continued trading while insolvent:
- Generates new TGSS debt (monthly RETA contribution)
- Generates new VAT obligations
- Potentially compromises the good faith requirement by adding new debts to an already hopeless position
- Reduces the amount of assets available for eventual distribution to creditors
Acting early is always better. The procedure cleans the slate — but the cleaner the slate when you enter, the more complete the fresh start when you exit.
How BMC can help
BMC’s insolvency advisory and Second Chance Law team has specialist experience with self-employed insolvency cases. We handle the full procedure from initial TGSS and AEAT debt analysis through PAED filing, court insolvency and EPI application. We also advise on the strategic questions: optimal deregistration timing, outstanding return filing, and structuring any future business activity after discharge.
Initial assessment at no cost. If you are an autónomo with debts you cannot manage, contact us before the situation deteriorates further.
