Keep your home under Spain's second chance law even with a mortgage

The case, in five lines

What is brought

An application for the insolvency (concurso) of a natural person together with an application for exoneración del pasivo insatisfecho (discharge of unpaid debts) under a payment plan without liquidation of the estate (arts. 486 and 495 TRLC, the texto refundido de la Ley Concursal or consolidated Insolvency Act): a five-year proposal that keeps the main home, maintains the mortgage and, if the debt exceeds the value of the security, recalculates its instalment (art. 492 bis.2). Then, defence of the plan against creditors' submissions and challenges and against any attempt to enforce against the home.

Before which court

The Sección de lo Mercantil del Tribunal de Instancia (commercial section of the court of first instance) of the province where you have your centre of main interests, sitting in the provincial capital; where there is no commercial section, a judge of the Sección Civil (civil section) of that court. That same insolvency judge decides whether the bank may enforce against the home (arts. 146 to 148 TRLC) and, during the plan, the claims of creditors holding non-dischargeable debt (art. 499.2). Appeals go to the Audiencia Provincial (Provincial Court of Appeal).

Deadline

The plan may be requested at any time before the judge orders liquidation (art. 495.2); not afterwards. Creditors who have appeared have ten days to make submissions (art. 498.1) and affected creditors another ten to challenge it (art. 498 bis.1); the judgment on the challenge is given within thirty days and may be appealed within twenty, without suspensive effect. The plan lasts five years from its court approval (art. 497), with a report to the judge every six months (art. 498 ter.3).

Who can bring it

Only the debtor, a natural person acting in good faith, whether or not in business (art. 486), proposes the plan, always through our procurador (court representative) and with our lawyer's signature: you only grant the special power of attorney, free of charge and without a digital certificate, in person before the letrado de la Administración de Justicia (court clerk) of any court office. Two or more creditors are required. Creditors who have appeared make submissions; any affected creditor may challenge the plan or seek its revocation; the bank may ask for the home to be declared not necessary (art. 147).

Financial risk

The judge may refuse the plan or approve it with changes, and checks good faith even if nobody objects. If you stop paying the mortgage, the bank may enforce; if you breach the plan, any affected creditor may seek revocation, which terminates the plan and opens liquidation, with the sale of the home (art. 499 ter). The discharge does not extend to anyone who signed with you or to your guarantors, and it is recorded in the Registro público concursal (public insolvency register) for five years.

Only a payment plan prevents the sale of the home, and it lasts five years

The texto refundido de la Ley Concursal (TRLC, the consolidated Insolvency Act) gives a natural person who is a debtor in good faith two routes to the exoneración del pasivo insatisfecho (discharge of unpaid debts) (art. 486): with liquidation of the estate, or with a payment plan without liquidation. Under the first, everything in the estate is realised, which means all your assets and rights except those that cannot legally be seized (art. 192), and a home you own is not exempt from seizure. If you want to keep the house, the only route is the second.

The duration is not a matter of choice. The general rule is three years, but art. 497.2 sets five when the main home of the debtor and, where applicable, of the family is not realised, and also when payments depend exclusively or mainly on how the debtor's income develops, which is the usual situation for an employee. The period runs from court approval (art. 497.3), not from the day you file the application, and during those five years the discharge is recorded in the Registro público concursal (public insolvency register), which you expressly accept when you apply (art. 495.1).

What nobody tells you is that this route has a door that closes: the application with a plan may be filed at any time, but only before the judge orders liquidation of the estate (art. 495.2). That is why, when there is a home to keep, we file the plan proposal together with the insolvency application itself or immediately afterwards, accompanied by the personal income tax (IRPF) returns for the last three years, yours and those of the other members of your family unit (art. 495.1). Once liquidation has been ordered, the house is included in the sale.

The mortgage is not cancelled: it is still paid, sometimes with a lower instalment

Secured debt is not discharged within the limit of the special privilege (art. 489.1.8.º TRLC): whatever is covered by the value of the security is paid in full. That is why the plan does not touch the mortgage insofar as the house secures it, and it must provide the resources to meet the instalments of the non-dischargeable debt (arts. 496.2 and 498 bis.1.4.º). During the plan, non-dischargeable claims do not accrue interest, except those secured by a charge up to the value of that security (art. 496 bis.3): the mortgage keeps accruing its interest.

The welcome surprise comes when the home is worth less than you owe. If the debt outstanding when the plan is filed exceeds the value of the security, the agreed due dates are kept, but the principal and interest instalment is recalculated using only the part that does not exceed that value, and for variable interest the reference rate applicable on the date the plan is approved is used (art. 492 bis.2.1.ª). The excess receives the treatment that corresponds to its class in the plan, and whatever remains unpaid is discharged (art. 492 bis.2.2.ª). The value of the security is calculated under the rules of title V of book one: 90 % of the fair value set by a valuation from a valuation company approved by the Banco de España (the Bank of Spain), unless there is one from the six months before the insolvency, less prior charges.

An example: you owe the bank 180,000 euros and the valuation comes in at 150,000. The value of the security is 135,000; the instalment is recalculated on that figure with the same due dates, and the other 45,000 go into the plan as one more claim of its class, dischargeable to the extent it is not covered. In this scenario a comparison with liquidation is essential: under liquidation you lose the house, but whatever its sale does not cover falls outside the privilege and can be discharged without a five-year plan; under the plan you keep the house in exchange for sustaining the recalculated instalment and whatever the plan requires. The decision rests on your real income, not on attachment to the home.

Filing for insolvency does not shield the house from mortgage enforcement

From the declaration of insolvency, holders of security interests may not start enforcement against assets necessary for the continuation of the debtor's professional or business activity (art. 145.1 TRLC), and enforcement already under way against any asset is suspended even if the auction notices have been published (art. 145.2). If your bank had already sued you, the enforcement stops with the declaration, not with the application. But the home of a private individual who carries on no activity there is not, in principle, an asset necessary for that activity.

That is why the protection is limited. To start or resume enforcement against an asset that is not necessary, the bank only has to produce a certified copy of the insolvency judge's decision declaring it not necessary (art. 146), which is given at the bank's request after hearing the administración concursal (insolvency practitioner) (art. 147.1). And once a year has passed from the declaration without liquidation being opened, it may enforce against any asset, before the insolvency judge and in a separate section of the proceedings (art. 148). If you work from your home, whether it is necessary is argued before the judge with evidence of that activity.

The real protection is something else: staying up to date. When the provisional discharge takes effect, the effects of the insolvency cease and are replaced by those set out in the plan (art. 498 ter.2); from then on, declaratory and enforcement actions by creditors of non-dischargeable debt, the bank included, are brought before the insolvency judge through the incidente concursal (insolvency ancillary proceedings) (art. 499.2). If you stop paying the instalment, the bank may enforce, the plan is breached and, if the sale is enough to pay debt already discharged, that discharge is revoked by operation of law (art. 492 bis.3). Outside insolvency, enforcement against the main home leaves outstanding whatever debt the auction does not cover, from which you are released only if you pay 65 % within five years or 80 % within ten (art. 579.2 LEC, the Ley de Enjuiciamiento Civil or Civil Procedure Act).

How much you will have to pay: income above the minimum and the price of keeping the house

The law sets no minimum instalment and no percentage of the debt that must be repaid. The plan includes the payment schedule for the dischargeable claims and details the resources for meeting it and for paying the non-dischargeable debt, new maintenance obligations, your living costs and, if you have one, your business, with particular attention to future income and how it is likely to change (art. 496). It may combine fixed payments with payments linked to what you earn, but it may not consist of liquidating all your assets or alter the statutory order of payment without the consent of the creditors who would be postponed.

The real threshold is set by the challenge. Any affected creditor can bring down the plan if the plan does not devote to the dischargeable debt all foreseeable income exceeding the legal minimum exempt from seizure, what is needed for reasonable new obligations and what the instalments of non-dischargeable debt require (art. 498 bis.1.4.º). The benchmark is art. 607 LEC: a salary or pension not exceeding the national minimum wage, 1,221 euros a month in 2026, cannot be seized, and the excess is seized in bands from 30 % to 90 %. The mortgage instalment is deducted before calculating what goes to the other creditors, because it is an instalment of non-dischargeable debt.

What nobody tells you is the price of keeping the house. The plan must guarantee each creditor at least what it would receive in liquidation (art. 498 bis.1.1.º). If your home is worth more than you owe the bank, in a liquidation that net value would go to your creditors, and the five-year plan must secure them at least what they would get. In return, the main home is excluded from the rule that allows creditors holding at least 40 % of the dischargeable debt to demand the sale of assets you do not need for your business (art. 498 bis.1.2.º): that rule does reach a second home or a car you do not use for work. And if creditors holding more than 80 % of the affected dischargeable debt object, the judge will not grant it unless, in view of the circumstances, the judge imposes it (art. 498 bis.1.3.º).

Submissions, challenge and appeal: three deadlines that run one after another

Once the proposal is filed, the letrado de la Administración de Justicia (court clerk) sends it to the creditors who have appeared, who have ten days to make submissions on the requirements for discharge and on the plan, and may ask for your powers to dispose of or manage your assets to be limited or prohibited while it lasts (art. 498.1). The judge then checks the statutory conditions and requirements, the content of the plan and its objective prospects of being performed, and refuses or provisionally grants the discharge, approving the plan as proposed or with whatever changes the judge sees fit (art. 498.2).

That check is carried out by the court of its own motion. The Tribunal Supremo (Supreme Court), in its judgments 259/2026, 261/2026, 262/2026 and 263/2026 of 18 February, held that good faith means the absence of the grounds for exclusion in art. 487.1, that the judge checks it even if nobody objects and that it is for you to provide the information, including the origin of debts that were disproportionate to your income at the time. In judgments 254/2026 and 260/2026, of the same date, it held that the discharge only reaches the debts you listed and that the cap on public-law debt applies to each public creditor separately: from each, the first 5,000 euros are discharged in full and half of the rest, up to 10,000 euros, while subordinated surcharges, interest and penalties are discharged in full, except very serious penalties, which are never discharged.

After the provisional grant, any affected creditor may challenge it within ten days on the limited grounds in art. 498 bis.1. All challenges are decided together through the incidente concursal (insolvency ancillary proceedings), with notice to you and to the other creditors so they can oppose; judgment is given within thirty days of the end of those proceedings and may be appealed to the Audiencia Provincial (Provincial Court of Appeal), without suspensive effect (art. 498 bis.3); the time limit for the appeal is twenty days from notification. The provisional discharge takes effect when the challenge period ends if nobody challenges it, or from the judgment rejecting the challenge (art. 498 ter.1).

Five years is a long time: what to do if your life changes halfway through the plan

During the plan your duties to cooperate and provide information continue, and every six months the judge is informed of performance and of any significant change in your assets (art. 498 ter.3); we file that report with your supporting documents. If your financial situation changes significantly, you or any affected creditor may ask for the plan to be modified, within the same deadlines and in the same way as the original, but only one modification is allowed (art. 499 bis). Using it up early leaves you with no room for the rest of the five years.

If you fail to comply with the plan, any affected creditor may seek revocation of the provisional discharge, and in income-linked plans also if, at the end, you did not devote all your available income (art. 499 ter.1 and 2). Revocation terminates the plan and opens liquidation, with the sale of the home, although what was done in performance of the plan keeps its effects unless there was fraud (art. 499 ter.3). Even without full performance, the judge may grant final discharge, after hearing the creditors, if the breach results from an accident, illness or other serious and unforeseeable events affecting you or those who live with you, provided you complied with the restrictions and the transfers in payment set in the plan (art. 500.2).

And there is a way out worth bearing in mind: you may set aside the provisional discharge and apply for discharge with liquidation, also if the plan is revoked or final discharge is not available (art. 500 bis). You lose the home, but not the second chance. If the plan reaches its end without revocation, the judge issues an order of final discharge, which is published in the Registro público concursal and is not open to any appeal (art. 500.3); it is with that final order, not the provisional one, that creditors are ordered to notify the discharge to the credit reference files they reported to. During the three years following the provisional discharge, an inheritance, legacy, gift or gambling win that substantially improves your situation may lead to its revocation to that extent.

How we run the case, step by step

1. 1

   Run the numbers before applying for anything

   With the valuation, the outstanding mortgage capital and your family unit's income we calculate the value of the security, the income the plan will have to devote to creditors and what they would receive in a liquidation. Those three figures decide whether a five-year plan is sustainable or whether liquidation is the better course.

2. 2

   Grant the special power of attorney and gather the documents

   You grant the special power of attorney for the insolvency to our procurador in person before the court clerk of any court office, free of charge and without a digital certificate, and upload the documents to your file. We never ask for your digital certificate or your Cl@ve (government login).

3. 3

   File the insolvency with the plan proposal

   Our procurador files, with our lawyer's signature, the insolvency application with the report, the inventory and the list of all your creditors, and the plan proposal with its schedule, its resources and the IRPF returns for the last three years of the whole family unit, before liquidation can be ordered. Natural persons pay no court fee.

4. 4

   Answer the submissions and hold off enforcement

   During the ten-day submissions period we answer the creditors and adjust the plan where advisable. If the bank asks for the home to be declared not necessary in order to enforce against it, we defend your position before the insolvency judge: if you work from it, with evidence that it is necessary for your professional activity, and in any event with evidence that the instalment is being met and is provided for in the plan.

5. 5

   Defend the plan against challenges and, if needed, on appeal

   If a creditor challenges within the ten days, we oppose in the insolvency ancillary proceedings with evidence of your income, your reasonable expenses and the value of the home. Against the judgment, an appeal to the Audiencia Provincial within twenty days of notification.

6. 6

   Stay with you for the five years until final discharge

   We file the compliance report every six months, request a modification if your situation changes, argue for final discharge despite a justified breach and, at the end, request the order of final discharge and a certified copy of it to require the credit reference files to update their records.

The law that applies

• Arts. 486 y 495 TRLC. They give a natural person debtor in good faith, whether or not in business, discharge under a payment plan without liquidation or with liquidation of the estate. An application with a plan requires accepting its entry in the public insolvency register and providing the IRPF returns for the last three years of the debtor and the family unit, and it may be filed at any time before the judge orders liquidation. BOE-A-2020-4859
• Arts. 496 y 497 TRLC. The plan sets out the payment schedule for dischargeable claims and the resources for meeting it and for non-dischargeable debt, new maintenance and living costs; it allows fixed, variable or mixed payments and agreed transfers in payment, but not total liquidation or altering the statutory order of payment. It lasts three years, and five if the main home is not realised or if payments depend mainly on income, counted from court approval. BOE-A-2020-4859
• Arts. 498, 498 bis y 498 ter TRLC. Ten days for submissions by creditors who have appeared; the judge checks the requirements, content and viability and grants provisionally, with or without changes. Any affected creditor may challenge within ten days on limited grounds, including not receiving what it would get in liquidation or not all available income being devoted; judgment within thirty days, open to appeal without suspensive effect. The provisional discharge ends the effects of the insolvency and requires a six-monthly report. BOE-A-2020-4859
• Art. 492 bis TRLC. If the security was enforced before provisional approval of the plan, only the remaining debt is discharged. If the debt exceeds the value of the security, the agreed due dates are kept but the instalment is recalculated on the part that does not exceed it; the excess is treated according to its class in the plan and whatever is unpaid is discharged. The discharge is revoked by law if later enforcement is enough to pay discharged debt. BOE-A-2020-4859
• Arts. 145 a 148 TRLC. From the declaration of insolvency, enforcement under way against any asset is suspended and none may be started against assets necessary for the debtor's activity; to enforce against assets that are not necessary, the creditor needs a decision of the insolvency judge declaring so. Once a year has passed without liquidation being opened, it may enforce against any asset before the insolvency judge, in a separate section of the proceedings. BOE-A-2020-4859
• Arts. 499, 499 bis, 499 ter, 500 y 500 bis TRLC. The discharge reaches the dischargeable debt that the plan leaves unpaid, and actions by creditors of non-dischargeable debt are brought before the insolvency judge through ancillary proceedings. Only one modification for a significant change; revocation for breach, opening liquidation; final discharge at the end of the plan, not open to appeal, or despite breach caused by serious and unforeseeable events; and the option of switching to discharge with liquidation. BOE-A-2020-4859
• Art. 489 TRLC. It lists the debts that are not discharged, including maintenance, criminal fines, very serious administrative penalties and secured debts within the limit of the special privilege. Public-law debt is only discharged in the first discharge, up to 10,000 euros (the first 5,000 in full and 50 % of the excess), a cap that the Tribunal Supremo applies to each public creditor separately (judgments 254/2026 and 260/2026). BOE-A-2020-4859
• Arts. 579 y 607 LEC. After enforcement against the main home, the debt the sale price does not cover remains outstanding, although the debtor is released by paying 65 % of the outstanding amount within five years or 80 % within ten. A salary or pension not exceeding the national minimum wage cannot be seized, and the excess is seized in bands from 30 % to 90 %, adding all income together. BOE-A-2000-323

Each article checked against the consolidated text published in the BOE (the Spanish official gazette).

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