How does second chance auto for individuals?
Beneficiaries of the law of second chance for individuals
This law is designed to help individuals and freelancers to obtain an exemption from their debts, something that until now was reserved only to companies at a legal level.
With the application of the law of the second opportunity for individuals, all those who have failed in their finances can face their debts with the guarantee of their present and future assets.
To benefit from the second-chance law for individuals, it is necessary that the assets that are not essential for the development of the professional activity are ceded, always for a value equal to or lower than that of the debt.
In the case of self-employed workers and entrepreneurs, they must have a feasibility plan and a payment schedule of fewer than ten years.
How to avail of the law of second chance?
Before availing himself of the law of the second opportunity for individuals, which must be controlled by a judge.You can also request that a bankruptcy mediator participates in the process, with the objective of guaranteeing the success of the negotiation.
The exemption from debt
If the judge considers that the private debtor has no assets or assets to do away with his obligations – and provided that he has acted in good faith -, he can exonerate him from his responsibilities.
It is worth highlighting that in ‘good faith ‘ it is understood that an extrajudicial agreement has been tried and that it has not been considered guilty in the bankruptcy proceeding to which it has been submitted.
Keep in mind that access to the application of the law of the second opportunity for individuals does not imply the exoneration of all debts.
The legal text establishes the elimination of debts contracted with private creditors, but not those that are held with the Tax Agency and Social Security. Likewise, divorced persons cannot be exempted from the payment of alimony to their children.
Also, one should remember that the law states that, if in the 5 years following the exemption of debts one of the creditors can demonstrate the bad faith of the debtor or that he has obtained other income, he can request the revocation of the judge of the previous application of the law of the second opportunity for individuals. At present, the term of 5 years is already considered unlimited.
Keys to understanding the Second Chance
The Law as running second chance, reduced financial burden and measures of social order, which has been known as the ” Second Chance Act”; that destined for those debtors in the competition who have right faith and burdens.
The novelty is that for the first time, has included individuals with the aim that they can direct their lives despite their failures again.
It is directed mainly to small businesses or self – employed entrepreneurs and individuals who can not cope with their debts.
This law falls into force on July 30, 2015, after being published in the BOE and, although it was thought that it would have a great reception, the truth is that, as time has gone by, it has proven not to be very useful.
This Law of Second Chance has had a great repercussion because, in only ten articles, it has reformed several fundamental social aspects, among which we highlight:
Suspension of evictions until 2017 in permanent homes of vulnerable groups.
Incentives for the creation of stable jobs.
Family conciliation of the self-employed.
The 5 Keys to the Second Chance Act are:
1º. To begin with, the debtor must reach an out-of-court settlement with his creditors under the supervision of the judge, to establish some other way of paying what is owed.
2nd. The law establishes that the debtor grants his creditors some shares of his company or gives them assets to compensate them for his non-payment, as well as the debtor who proposes to them an optimal viability plan. The time to pay, even if done in installments, cannot exceed ten years.
3º. The debtor can request the help of a bankruptcy mediator who acts as an interlocutor between the parties. If no settlement is made in two months, both can ask the judge to declare voluntary bankruptcy.
4th Once within the voluntary creditors’ contest, the judge can exonerate the debtor from part of his debt, if the judge considers that he no longer has assets or money to face it and that the debtor has acted in good faith.
5th He will act correctly, for example, by striving to reach an agreement with his creditors, that he has not caused his insolvency , that he has never been convicted of crimes against the Public Treasury or Social Security and that the debtor has not rejected offers of work or ways to improve their economic situation.
It should be remembered that, in case of being exonerated from debts, not all are eliminated. Only the private debts will disappear, that is, those related to credit cards, banks or suppliers, but never the credits of public right nor the credit for food such as the debts with the Social Security or Tax Agency.
Why does the law of second chance not meet expectations?
When the Second Chance Law was published, it was very well received on its excellent intention. But from the claimant, we have encountered enormous difficulties in asserting all the rights that are included in it. This has a direct impact on those affected. It makes your path to the second opportunity not precisely a way of roses.
Difficulties of the Second Chance Law
The cost of the notary
The Law establishes that they will not charge for the management of naming bankruptcy mediator and that they would not charge the consumer any expense. But some are not doing so and are charging a provision of funds justifying the costs that it entails.
To this must be added the refusal at times to assume the order under the burden of work. At other times, if no provision is made, they do not accept the request to appoint the mediator, which delays the entire process.
This generates a lot of frustration and defenselessness to the user, who is drowned by the debts. Without even having started the procedure, you will see farther if the light at the end of the tunnel.
Lack of regulation of insolvency mediators
There is no professional statute for mediators consumables. This means that they can reject the notary’s request without claiming any cause. Therefore, it forces the notary to proceed with a new appointment, extending the process further.
This fact is very common, and there are five media rejections of bankruptcy mediator for each file. This increases the nervousness and uncertainty of the client. The notary is also upset because it forces him to make a new appointment.
Also, there is no clear remuneration regime concerning bankruptcy mediators. Sometimes, the fees established by the law are too low, and some mediators tend to raise them. Therefore, the affected and his lawyer are in a compromised situation and accept them to avoid having problems during the procedure.
The attitude of creditors
The principle of the law was to be able to reach agreements before the judicial process. The reality is not being that way. The creditors usually do not position themselves, and the votes that are issued tend to be contrary to the proposal.
As a claimant, we have handled very unusual cases such as banks that have not even voted in favor of a proposal consisting of the payment of 100% of the debt with 10-year waiting periods. This means that everything ends almost always in a contest in the liquidation phase.
We think that the “professional creditors” (mainly banks) are not well managed this type of procedures because they do not vote in favor of many proposals that are viable. This causes them to lose their collection rights against the debtor through the release of the debt that has been left pending payment.
Other types of obstacles
The Law does not make clear the exact moment in which the generation of interests can be paralyzed once the procedure has begun. In practice, the creditors continue to seize and claim interest during the proposal for an out-of-court settlement.
Some proposals for the improvement of the Second Chance Act
As we have seen, there are many difficulties from the claimant we find when enforcing the Second Chance Law and we want to contribute some proposals that could make it viable:
That the notaries are designated by the Notarial Colleges. Establish a mandatory shift between all notaries who provide services in the area of the applicant.
Establish a fixed amount or a clear remuneration that notaries can charge for the performance of the actions that the Law says they have to do.
Define a Statute of the Bankruptcy Ombudsman, in which all your rights and obligations are collected. Sanctions should be collected in case of non-acceptance as well as a clear and dignified remuneration so that the user could know the duration and the cost of the procedure in advance.
Establish clearly when they stop charging interest or paralyze the executions. We think that it should be the time at which the Second Chance application is presented.
That there be a precise and agile mechanism that allows all creditors to communicate the existence of the application and its effects.
Until these deficiencies are corrected, the Second Chance Act will continue to be a procedure with little legal certainty and without full guarantees for the consumer. For this reason, we will not handle new claims of this type, given that our service seeks precisely to offer security guarantees of success to our customers.