Bankruptcy (concurso de acreedores) is a legally declared inability or impairment of ability of an individual, self-employed worker or company to pay their creditors. Creditors may file a bankruptcy petition before Spanish Courts against a debtor (concurso necesario) in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor (concurso voluntario).
It is recommended for individuals to file for bankruptcy in case of having many debts and not enough assets to face them. By doing so, seizures may be stopped and accrual of interests may also be stopped. Further, one may delay and/or reduce payment of debts.
On the contrary, if we are owed money, we may file for bankruptcy and may get the payment of our credits even with the debtor’s personal assets, among other advantages explained below.
Individuals, whether self employed or not, as consumers, may be declared bankrupt under Spanish law, for not paying their loans, mortgages or any other type of obligations.
Companies that may be declared bankrupt are those registered with the Mercantile Registry or that legally cannot be registered, or those companies registered in Registries other than the Mercantile Registry.
Bankruptcy may be filed by the debtor (concurso voluntario, voluntary bankruptcy) or by the creditor (concurso necesario, mandatory bankruptcy).
If we are the beneficiaries of an inheritance with existing debts to be paid, it is recommended to file for bankruptcy; however, this may only be possible if the inheritance has not been already accepted.
Debtor must file for bankruptcy within 2 months since the time when insolvency occurs; otherwise the debtor may incur certain legal liabilities that may be claimed by creditors.
Creditor must file for bankruptcy rapidly as soon as he/she foresees the insolvency of debtor and that the credits will be difficult to be paid.
Petition for bankruptcy must be filed before a Mercantile Court (Juzgado de lo Mercantil) with jurisdiction on the debtor’s registered address. The assistance of a lawyer and a procurator (court attorney) is always required.
Insolvency of debtor is the main requirement to file for bankruptcy in Spain. Stop paying a few bills is not enough to be declared bankrupt, as proof of insolvency is always required.
Insolvency may be current insolvency or insolvency that is foreseen to happen in the near future; in any case, insolvency must be proven before the Court.
The main advantages of a bankruptcy case for the debtor are the following:
- Other foreclosures or garnishments may be stopped. In case the insolvency arises from a monetary loan, the financial institution that granted the loan will be prevented from requesting seizure of our assets, subject to certain legal requirements. In case of a debtor company that files for bankruptcy, it may also stop seizures of its own assets.
- Accrual of interests from loans may also be stopped.
- It may be possible to enter a restructuring agreement with the creditors through the Mercantile Court, in order to reduce our debts and/or to delay the payment of debts.
The main advantage for the creditor that files for bankruptcy first is to get a privilege over the others by obtaining payment of 25% of their total credits more than the other creditors.
Such creditor will also enjoy another advantage, i.e. the debtor will be required to deposit the amount owed to such creditor before the court.
In certain cases, creditors may get the payment of their credits even with personal assets owned by the directors of the debtor company if the company’s assets are not enough.
Whether you need to file for bankruptcy to give your company a fresh start, or to stop foreclosure, or to defend your interests as a creditor, iAbogado’s English-speaking lawyers have the knowledge and the experience to guide you through the intricacies of Spanish bankruptcy law. Start now by setting up a consultation on bankruptcy with one of our lawyers.