Will I Lose My Home Under Spain's Second Chance Law? Property, Mortgages and Payment Plans

It depends on 2 things: whether you own property and the route through which you request the discharge of unsatisfied liabilities (exoneración del pasivo insatisfecho), which is the legal name for debt cancellation. If you rent, live with family or live in a house that is not yours, there is no home to lose: the insolvency proceedings only cover assets in your name, and legally unseizable items, such as essential furniture, household goods and clothing, are excluded.

If the property is yours, the law offers 2 paths. In discharge with liquidation, your assets are sold to pay creditors, including the house, and any remaining unpaid debt is cancelled. In discharge with a payment plan, nothing is liquidated: you propose a payment schedule and, if the judge approves it, you keep the home as long as you comply with the plan. When the plan does not involve selling your main residence, it lasts 5 years instead of the standard 3.

Neither path is automatic. Discharge is granted by the Commercial Division of the Court of First Instance (Sección de lo Mercantil del Tribunal de Instancia) in your province, after checking of its own motion that you are a debtor in good faith, even if no one objects, and the plan can be challenged by creditors. What decides whether you keep the house is simple arithmetic: what it is worth, what is owed on it and what comes into your household each month.

Liquidation includes everything that forms the insolvency estate: the assets you own on the day insolvency is declared and those you acquire until it ends, including accepted inheritances. The property is sold within the insolvency proceedings themselves. If there is a mortgage, the bank is paid from the sale price up to the limit of its security, and anything the sale price does not cover becomes debt that can be discharged along with the rest.

This is the usual route when the house is worth less than what is owed on it and you can no longer afford the monthly instalments, or when keeping it would require a payment plan that your income cannot support. With liquidation there is no provisional phase: if the requirements are met and no one successfully objects, the judge grants the discharge in the same court order that closes the insolvency proceedings. For 3 years it can be revoked if hidden assets or income appear, or if your financial situation improves substantially through an inheritance, bequest, gift or gambling.

If you are married under a community property regime (régimen de gananciales), the shared home enters the insolvency estate when it is liable for your debts. Your spouse has an option: keeping the property by paying the insolvency estate half of its value, which for the main residence is calculated using the higher figure between the official valuation and the market value. Your spouse can also ask the insolvency judge to dissolve the community property regime, with preference for the main residence to be included in their share.

The payment plan is the only route that allows you not to sell your home. You can apply for it at any time before the judge orders liquidation, meaning the decision is made at the beginning and not once the sale is already underway. You submit a proposal setting out the payment schedule for the dischargeable debts and detailing the resources you will use to cover, in addition, the non-dischargeable debts (including the mortgage), any maintenance obligations you owe and your own living expenses.

The law does not set a minimum monthly instalment or a fixed percentage. It sets thresholds that any affected creditor can enforce by challenging the plan within 10 days: the plan must allocate to dischargeable debt all your foreseeable income above the unseizable threshold, your reasonable new obligations and the due dates of non-dischargeable debt; it must guarantee each creditor at least what they would receive in a liquidation; and it will not go ahead if creditors holding more than 80% of the affected dischargeable debt object, unless the judge imposes it in view of the case.

When you own a home, the threshold that carries the most weight is the liquidation test. If the house is worth significantly more than what is owed on it, creditors would collect that difference in a sale, so the plan must give them at least that amount over 5 years. If the house is worth less than the mortgage, a sale would barely yield anything for them and the threshold drops. There is also an express protection: creditors holding at least 40% of the dischargeable debt can demand the sale of assets you do not need for your business or profession, such as a second property, but your main residence is exempt from that demand.

If the judge approves the plan, they grant provisional discharge and the effects of the insolvency proceedings cease, replaced by the terms of the plan. The 5 years run from judicial approval, and during that time you report to the judge every 6 months on your compliance and any significant changes to your assets. If the period ends without revocation, the judge issues the final discharge order, which is published in the Public Insolvency Register (Registro público concursal) and cannot be appealed.

Yes, you must keep paying it. Mortgage debt is not cancelled within the value of the security: it is one of the debts that the law excludes from discharge. What can be cancelled is the portion that exceeds that value, and therein lies the most useful rule for anyone whose home is worth less than their mortgage.

When the remaining balance exceeds the value of the security, the payment plan keeps the maturity dates agreed with the bank, but the principal and interest instalments are recalculated taking only the part of the debt that does not exceed that value. If the interest rate is variable, it is calculated using the rate applicable under the contract on the date the plan is approved, and is subsequently reviewed as provided in the contract. The excess portion is treated in the plan according to its debt class, like your other debts, and whatever remains unpaid is cancelled upon final discharge. During the plan, the mortgage only accrues interest up to the value of the security.

The value of the security is not the price you think your house is worth. It is 90% of its fair value, determined by a valuation from an appraisal company approved by the Bank of Spain (Banco de España), unless one already exists from the 6 months prior to the declaration of insolvency, minus any prior preferential charges. It can never be negative or exceed what is owed. The valuation is carried out by a third party and its cost is not included in our fee; you only need to provide access for the visit.

If someone signed the mortgage with you as a joint and several co-debtor, if your parents acted as guarantors or if they mortgaged their own home to secure yours, the discharge does not cover them: the bank can claim against them. In return, anything they pay on your behalf cannot be claimed back from you afterwards if that debt was cancelled.

From the declaration of insolvency, not from when the application is filed, no enforcement proceedings can be started against your assets and any already underway are suspended. Security interests in rem have their own rules: to enforce against an asset that is not necessary for a business or professional activity, and a private individual's home normally is not, the bank needs a ruling from the insolvency judge. Suspending is not cancelling: the debt is still there, but the suspension buys time to propose the payment plan.

If liquidation is opened, a bank that had not started repossession before the insolvency proceedings loses, in principle, the ability to pursue it separately, and the property is sold within the insolvency proceedings. If the repossession was completed before the payment plan is provisionally approved or before discharge with liquidation is granted, the house is no longer yours and only the shortfall debt remaining after the sale is cancelled.

There is a rule in the opposite direction: if a subsequent enforcement of the security raises enough to pay debt that was already discharged, provisionally or finally, the discharge is revoked by law for that portion. That is why the preliminary assessment must be based on the actual stage of the repossession, the auction date if there is one and the valuation stated in the mortgage deed.

If you breach the plan, any affected creditor can request the revocation of the provisional discharge. Revocation terminates the plan and opens liquidation, meaning the property goes up for sale. Payments already made retain their validity, barring fraud, breach of the plan itself or unequal treatment of creditors.

The recalculated mortgage is non-dischargeable debt, and the bank retains its rights of action. During the plan, anyone holding non-dischargeable debt can only claim or enforce before the insolvency judge, through an insolvency incidental proceeding (incidente concursal). Stopping mortgage payments puts the property at risk of repossession and, if the plan ceases to be viable, opens the door to its revocation.

There are 3 safety valves. The first: if your financial situation changes significantly, you or a creditor can ask to modify the plan, once only. The second: if you fail to complete it due to an accident, illness or other serious and unforeseeable event affecting you or someone living with you, the judge can still grant final discharge, after hearing the creditors, provided you have respected the limitations and assignments in payment set by the plan. The third: you can leave the plan and switch to discharge with liquidation.

One warning unrelated to missed payments: if within the 3 years following provisional discharge you receive an inheritance, bequest or gift, or win at gambling, and this substantially improves your financial position, the discharge can be revoked for the portion you are able to pay.

You have no house to lose, and your tenancy agreement continues: the declaration of insolvency, by itself, does not affect contracts where both parties have ongoing obligations. You carry on paying the rent and the landlord continues letting the property to you. In a payment plan, rent is included among the obligations used to calculate how much you can allocate to your creditors, provided it is reasonable.

Rent arrears accrued before the insolvency are just another debt: they are not among those the law excludes from discharge, so they can be cancelled if they are listed in your schedule of creditors. New rent falling due, however, must be paid. If your tenancy agreement has a guarantor, the discharge does not protect them and the landlord can claim against them.

If an eviction for non-payment is already underway, the law allows the insolvency practitioner (administración concursal), where one is appointed, to reinstate the tenancy agreement right up until the moment of actual eviction, by paying all outstanding rent and charges from the insolvency estate and undertaking to pay the legal costs incurred. In a no-asset insolvency (concurso sin masa), which is the most common scenario, an insolvency practitioner is only appointed if requested by creditors holding at least 5% of the liabilities, so that option does not always exist.

Managora handles personal insolvency and debt discharge from start to finish, with our own lawyer and procurador (court procedural representative), both required by law in these proceedings and included in our price. Before filing anything, we carry out a property assessment: what your home is worth according to the valuation, the remaining mortgage balance, the recalculated instalment and your household's disposable income. With those figures we tell you which route makes sense and whether the payment plan is viable, without promising an outcome that only the judge can grant.

You do not file anything at court. The only thing you have to do in person is grant a special power of attorney (apud acta) to the procurador: free of charge, before the court clerk (letrado de la Administración de Justicia) at any court office, without needing a digital certificate or Cl@ve (Spain's official digital login system for public services), or online via the Electronic Judicial Portal (Sede Judicial Electrónica) if you hold an electronic ID or digital certificate. We never ask for your digital certificate. After that, you pay the plan instalments and send us your payment receipts every 6 months for the report to the judge.

The judicial tasa (official fee) is €0 for private individuals, and publication of the insolvency in the Official State Gazette (BOE) and the Public Insolvency Register is free. You can see the updated price of our service on our Second Chance Law page. Once final discharge is granted, removing your details from credit default files and the Bank of Spain's Risk Information Centre (CIRBE) is covered on its own service page.