Article published by José Alberto León Alonso in El Día on 04/05/15.
"Experience has shown that when there are no second chance mechanisms, there are clear disincentives to undertake new activities and even to remain in the regular circuit of the economy. This obviously does not favor the debtor himself, but neither does it favor creditors, whether public or private. On the contrary, second chance mechanisms are disincentives to the underground economy and favor a business culture that will always benefit employment." This is how the Explanation of Motives of RD 1/2015, dated February 27, begins. However, in the recently approved second chance law, the mechanisms provided are certainly not very effective. As usual, the Government remains halfway in its attempts to solve the serious structural problems of the Spanish economy.
Last month the Government approved the second chance law, through which it is intended to exonerate from their liabilities those debtors in good faith who, throughout the bankruptcy procedure, have suffered the liquidation of their entire assets without being able to compensate all of their obligations. The Government has waited for the end of the legislature to face a pressing problem since the beginning of the crisis: the situation of excessively indebted families without the ability to pay the mortgage. Evictions have already been legislated three times, and some of the most evil aspects of the mortgage law have been eliminated, but the underlying problem has persisted. Banks with too many empty houses and too many people left homeless.
The reform that is being carried out presents progress in some extremes that must be highlighted, but once again it remains halfway. Among its positive aspects is that both individuals and entrepreneurs can benefit from these mechanisms. It is also positive that the arbitrated mechanism is based on mediation through an extrajudicial payment agreement (AEP), avoiding the feared judicial collapse.
But the improvements introduced are laughable if there is no adequate second chance regime that stimulates agreement and this is where the planned system fails. Debt exoneration must be requested by the debtor who must be in good faith, which is deduced from the concurrence of a series of requirements. But the ridiculous thing about the matter is that if the exoneration is granted, the “extinguished” credits can be “resurrected” if at the end of five years the debtor's economic situation substantially improves. Let's say that although a second chance regime is intended to recover the debtor, with the new regulation, if the debtor is actually recovered, then the creditors can exercise their legal actions again. That is, we are going to encourage the underground economy and actions through front men. Either that, or "they have to take a five-year sabbatical at the expense of the family. And the World Bank says it clearly: "the benefits of debt relief can become illusory if the debt relief is not respected once the bankruptcy procedure has concluded." Likewise, the recommendation of the EU and the IMF that suggests that debt forgiveness be produced within a maximum period of three years, and not five, is dispensed with.
Once again, it seems that when legislation collides with banking, good intentions evaporate. The designed path to debt relief is too cumbersome, insecure and expensive for someone who is about to lose their home. Thus, if a bankrupt manages to endure, and pay, the legal process of declaring bankruptcy, reaching liquidation, requesting exoneration, responding to the allegations of the counterparty's lawyers, they will still have to demonstrate for five years that they have met the conditions and that they are still not raising their heads. If an individual manages to recover from bankruptcy in less than five years, there will be the sword of Damocles of the resurrection of the obligation to pay the exonerated debt. Once again they forget about incentives. No one will dare to recover to be screwed over again.
It escapes me why a supposedly right-wing government does not apply the most liberal legislation in Europe in this matter: the British one. Personal bankruptcy in the UK is a relatively simple process: when a person files for bankruptcy, all their assets are used to pay off their existing debts, and they are prevented from accessing new credit or running a business for the duration of the bankruptcy proceedings and up to a year afterwards. In total, it lasts less than two years as long as you cooperate with the judge and do not hide assets to pay the assumed debts. The opposite means a prison sentence, as it should be. After emerging from personal bankruptcy, all past debts are canceled. Any new assets that the former debtor generates are their property and cannot be claimed by pre-bankruptcy creditors. Typically, private credit agencies will assign you a negative debtor rating for up to six years, so your access to credit will be limited, but those who do not cooperate may face additional limitations for 15 years.
It is a relatively quick process that allows debtors in good faith to resume their lives and makes life impossible for professional scoundrels. Why haven't we copied it in Spain? Oh, of course, the banks don't like it.
