Declaring bankruptcy

Bankruptcy is the declared inability to pay creditors. It is usually filed by the debtor, but in some cases, the creditor files a bankruptcy petition against the debtor before Spanish courts.

The Spanish Bankruptcy Act simplifies the legal process to alleviate financial difficulties. The act ensures the assets of the debtor are fairly distributed among creditors and helps the debtor be able to pursue future endeavors.

The importance of filing for bankruptcy

Declaring insolvency does not always reap consequences. Individuals with many debts should file for bankruptcy to protect themselves from seizures and accumulation of interest. There is even a specific law called “second opportunity” law. Through declaring insolvency, a debt repayment plan can be made for the debtor. Creditors should file for bankruptcy when they are owed funds they are not receiving from debtors. The legal process ensures that all creditors will be treated fairly.

Moreover, companies may be declared bankrupt not by their own doing, for instance not paying for their debts, loans and mortgages they owe.

When to file for bankruptcy

Filing for bankruptcy depends on whether you are the debtor or the creditor. According to Spanish law, if you are the debtor, you must file for bankruptcy within two months of the insolvency or else the creditor can claim legal liabilities of the debtor. If your debts surpass your monthly income or have multiple debts being collected, consider filing for bankruptcy.

Furthermore, if you are the creditor, the sooner you file, the better. If you predict the future bankruptcy of the debtor, file as soon as possible if the credits will be difficult to obtain.

What types of bankruptcy exists?

  • Voluntary bankruptcy: the debtor must be able to prove they are in debt and insolvent. This type is better for the debtor so they can be proactice before debt-collection of the creditor.

  • Involuntary bankruptcy: the creditor who filed must be able to prove the debtor is insolvent. The debtor can oppose the petition and the case can be heard before a judge.

  • Pre-bankruptcy

Effects of bankruptcy

For the debtor, bankruptcy can restrict their rights and freedoms and/or be barred from conducting business. If the bankruptcy is involuntary, the debtor´s assets can be suspended. In voluntary bankruptcy, the debtor still has access to assets, however, they must obtain permission to access them. Further, the debtor may still be able to continue their business with various alternative payments.

For the creditor, the creditor´s claims are added to the liabilities of the bankrupt estate.

Pre-bankruptcy in Spain

There is a period of grace for companies with financial difficulties in Spanish law. It is a preventative stage to stop the company from actually reaching bankruptcy. Importantly, Spanish courts are favorable among companies that declare pre-bankruptcy.

Pre-bankruptcy can:

  • protect your company from creditors´actions

  • show that your company acted in good faith

  • restructure your debt

How does bankruptcy help companies in Spain?

Bankruptcy is a legal procedure that helps solve insolvency. The creditor can collect funds while the debtor can find solutions to possibly continue their business. Additionally, this system greatly helps companies in the event of insolvency deal with their debts in an orderly procedure.

Disclaimer: This article may not be updated, to receive specific advice you should contact one of our lawyers.

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