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.