Second Chance Law 2026: Discharge Your Debts and Start Over

Spain's Second Chance Law (Book III of the Texto Refundido de la Ley Concursal, TRLC, Arts. 486–502) is the legal mechanism that allows insolvent natural persons — self-employed individuals, salaried workers, pensioners, and guarantors — to obtain judicial cancellation of their unpaid debts through the Benefit of Exoneration of Unsatisfied Liabilities (BEPI — Beneficio de Exoneración del Pasivo Insatisfecho). Following the Spanish Supreme Court rulings of February 2026 (STS 260/2026 and 254/2026), the exoneration now extends to surcharges, interest, and penalties owed to the Tax Agency and Social Security without any cap, significantly expanding the relief available to individuals with public debt. Access to the BEPI requires meeting the good-faith requirements of Article 487 TRLC and completing either a liquidation of available assets or a payment plan.

Who Is the Second Chance Law For?

The Second Chance Law is not only for business owners. It is for any natural person who cannot repay their debts. It is governed by the TRLC (Texto Refundido de la Ley Concursal — Consolidated Insolvency Act) and its technical instrument is the BEPI (Beneficio de Exoneración del Pasivo Insatisfecho): debts that the court declares discharged cease to exist in law — none of those creditors can ever claim them again.

The self-employed individual who closed their business. The most well-known profile: sole traders and individual entrepreneurs carrying debts from an activity that no longer exists. Debts to banks, suppliers, the Tax Agency, and Social Security. For them, the Second Chance Law enables the discharge of most of that debt so they can start again without the burden.

The over-indebted employee. Consumer credit, revolving credit cards, personal loans, and microloans that accumulated after a job loss, illness, or change of circumstances. Salaried employees can apply in exactly the same way as the self-employed — and their cases are often resolved faster because there are no business assets to liquidate.

The trapped guarantor. You guaranteed a loan for a family member, business partner, or company and creditors are now claiming the full debt from you. Many guarantors do not know they can apply for the Second Chance Law in their own right — the proceedings are independent of those of the principal debtor.

The family after divorce. Joint debts from the marriage (shared mortgage, co-signed loans, supplementary cards) that a single income cannot sustain. Each spouse can initiate their own proceedings independently.

The retiree with garnishments. People living with their pension garnished for debts incurred years ago. The Second Chance Law can stop the garnishments and, after discharge, restore 100% of the pension.

The eligibility requirements are primarily good faith in nature: no conviction for economic offences in the last 10 years, no rejection of a suitable job offer in the twelve months prior to the application, and no prior BEPI granted in the last decade. Corporate entities (SL, SA, cooperatives) cannot apply — they have ordinary insolvency proceedings. The distinction matters: if you operated as a self-employed natural person, you are a candidate.

Public Debts: What Can Be Discharged with the Tax Agency and Social Security in 2026

Until the 2022 reform, debts owed to the Tax Agency (AEAT) and Social Security (TGSS) were entirely excluded from the Second Chance Law. The reform introduced partial public debt discharge, and the Supreme Court rulings 260/2026 and 254/2026 (February 2026) have significantly expanded the real scope of that discharge.

Ordinary and privileged credit: For each authority (counted independently), 100% of the first EUR 5,000 is discharged, and 50% of the tranche between EUR 5,000 and EUR 10,000. Ordinary and privileged credit above EUR 10,000 per authority remains enforceable.

Subordinated credit (2026 update): Surcharges, late-payment interest, and tax or Social Security penalties are subordinated credit and are fully dischargeable, with no cap. The Supreme Court confirmed that these items are not subject to the EUR 5,000/EUR 10,000 thresholds. For many self-employed individuals who have accumulated surcharges over several tax years, this makes a difference of thousands of euros.

Tax liability derivation: The Supreme Court also clarified that tax liability derivation (where the Tax Agency claims a company’s debts from its director personally) cannot be used as an automatic veto on discharge. Each case is assessed individually.

Practical example: María, self-employed, EUR 65,000 total debt

In this example, María discharges EUR 63,500 of EUR 65,000 in total debt. Only EUR 1,500 of non-dischargeable public debt remains.

The Process Step by Step: From Assessment to Discharge

The procedure has two possible routes under the TRLC:

BEPI following liquidation (the most common): the debtor goes through insolvency proceedings, available assets are liquidated (in cases with no assets, this phase is very brief), and at the end the court grants discharge of the remainder. This is the fastest route for persons with no significant assets.

BEPI with a payment plan: the debtor presents a viable 3-year payment plan (extendable to 5 years) and, if fulfilled, obtains discharge of the remaining liabilities at the end. This route does not require liquidating assets and is the appropriate choice when the debtor wishes to retain their home or another asset.

Procedural simplification (Ley 1/2025)

Since the entry into force of the Ley 1/2025, prior insolvency mediation and out-of-court payment agreement attempts are no longer mandatory in most cases involving non-business natural persons. This simplifies direct access to consecutive insolvency proceedings, reduces costs, and shortens timelines. For self-employed individuals and sole traders, the out-of-court route remains available when it makes strategic sense.

Typical timelines

• Straightforward cases (no assets, mainly private debts): 6-8 months
• Cases with significant public debt: 8-12 months
• Cases with assets to liquidate or a home: 10-14 months

After the Second Chance Law: Rebuilding Your Financial Life

The BEPI is not the end — it is the beginning of a new chapter. The court order cancels the discharged debts with definitive effect, but there is a 5-year monitoring period during which the discharge can be revoked if your financial situation improves substantially and you do not apply a reasonable portion to paying creditors.

Removal from credit default registers

Creditors affected by the BEPI are legally obliged to remove your data from ASNEF, RAI, and other registers within the established timeframe. In practice, some do not comply and removal must be formally claimed. We manage this process and, where necessary, file complaints with the AEPD (Spanish Data Protection Agency). The immediate effect: you can open a bank account, sign a phone contract, and rent in your own name.

Access to financing

Your credit history is not automatically rebuilt, but the situation improves rapidly. Most people who obtain the BEPI can access basic financing (credit card, account with a credit line) within 12-18 months. For mortgages, the typical timeframe is 2-3 years with a solid post-discharge income record.

Starting a new business

You can register as self-employed or incorporate a company immediately after the BEPI — there is no disqualification period. To minimise personal risk going forward, it is worth operating through a limited liability company when the scale justifies it, separating personal and business assets, and designing a solid structure from day one. We coordinate this planning with our commercial law and company formation teams.

Tax impact of the write-off

The discharged debt may have tax implications in the income tax return for the year the BEPI is granted. The binding ruling DGT V0195-21 establishes the conditions under which the write-off in Second Chance proceedings does not generate taxable capital gains. Our tax team analyses this aspect as part of the service to avoid surprises in the next tax return.

The BEPI conditions: what debts can and cannot be discharged

Not all debts are dischargeable under Spain’s Second Chance procedure. Understanding the scope of the BEPI is essential for assessing whether the mechanism will actually resolve the debtor’s situation.

Dischargeable debts: unsecured commercial and personal debts (loans, supplier debts, credit cards, private leases), unsecured portions of secured debts that exceed the value of the collateral, and — under the current regime — certain public debts (AEAT and Social Security) up to EUR 10,000 combined.

Non-dischargeable debts: alimony and child maintenance obligations, debts arising from tort liability for damage caused intentionally or through gross negligence, fines and administrative sanctions, and public debts above the EUR 10,000 threshold.

Key condition: the debtor must be a natural person (individual) in good faith — meaning they did not incur debts fraudulently, did not conceal assets, cooperated throughout the insolvency process, and did not commit an insolvency crime in connection with their financial situation.

Second Chance for business owners: the interaction with insolvency and liability

Business owners whose company has entered insolvency (concurso de acreedores) and who have personally guaranteed company debts face a specific challenge: the business insolvency and the personal guarantee enforcement are separate legal proceedings, and the BEPI only addresses the individual’s personal debt burden, not the company’s. Our second chance team coordinates with our pre-insolvency advisory and insolvency advisory practices to provide an integrated solution that addresses both the company’s situation and the individual’s personal liability simultaneously.

For company directors facing potential liability under the Ley de Sociedades de Capital (LSC) for insolvent trading — Article 367 LSC liability for debts arising after the obligation to seek insolvency arose — the interaction with Second Chance planning requires careful timing and legal coordination.

The 2022 insolvency law reform and Second Chance improvements

Spain’s Ley 16/2022, transposing the EU Restructuring and Insolvency Directive (Directiva 2019/1023/UE), introduced significant improvements to the Second Chance mechanism. Key changes include: expanded BEPI coverage for certain public debts (AEAT and Social Security debts up to EUR 10,000 are now fully dischargeable); improved access for entrepreneurs who have not previously completed insolvency proceedings; and streamlined extrajudicial payment agreement (AIPC) procedures for straightforward cases.

The reform also introduced a new pre-insolvency restructuring framework (planes de reestructuración) that complements the Second Chance mechanism — allowing viable but financially distressed businesses to restructure debts before reaching insolvency, while their owners simultaneously address personal guarantees through the BEPI process. Our insolvency and restructuring team manages both the company-level restructuring and the personal Second Chance process on an integrated basis.

Self-diagnostic: is Second Chance the right solution for you?

• Are you an individual (natural person) — either a business owner or a private individual — with unsustainable debt levels?
• Have you acted in good faith — no fraudulent debt incurrence, no asset concealment, no recent voluntary transfers to third parties?
• Do your unsecured debts exceed your realistic repayment capacity over the next 3-5 years?
• Are the debts you want to discharge primarily commercial, financial, or personal loans (not alimony, criminal fines, or large AEAT/Social Security debts)?

If yes to all of the above, the Second Chance procedure is likely an appropriate solution. Contact our insolvency team for a free initial assessment of your situation.

Timeline: from consultation to discharge

Understanding the realistic timeline helps debtors plan their recovery:

Weeks 1-4: initial consultation, documentation collection, insolvency practitioner appointment, extrajudicial payment agreement attempt (mediador concursal notification to creditors with 3-month negotiation period).

Weeks 8-16: if extrajudicial agreement fails, filing of sequential bankruptcy (concurso consecutivo); court declaration of insolvency; appointment of insolvency administrator; asset liquidation where assets exist.

Weeks 20-28 (or earlier where simplified procedure applies): request for exoneración del pasivo insatisfecho (BEPI); court assessment of good faith; provisional BEPI granted.

5-year revocation period: the BEPI remains provisional for 5 years. During this period, a new material income source enables creditors to apply for partial revocation if the debtor’s circumstances improve significantly. After 5 years without revocation, the discharge becomes definitive.

Contact our insolvency team for an initial assessment. The consultation is free and confidential — and the earlier an insolvent debtor takes advice, the greater the restructuring options available.