The Supreme Court’s recent doctrine on the discharge of unsatisfied liabilities (known in Spain as the EPI) was expected to bring greater legal certainty to one of the most significant mechanisms in current insolvency law. In practice, however, the courts are showing that, far from settling the matter, the latest rulings have also opened up new interpretative and practical questions about the true scope of the second chance in Spain.
A doctrine that does not settle the second chance debate
The aim of the High Court was to set criteria on some of the most contested aspects following the insolvency reform, particularly regarding public credit, the debtor’s good faith and the grounds for excluding the discharge. Nevertheless, the way different judicial bodies are applying this doctrine continues to reveal approaches that are not always consistent, which keeps a degree of uncertainty in place for debtors, creditors and legal practitioners alike.
The good-faith standard and access to the second chance
One of the aspects generating the most debate concerns the good-faith standard required to access the discharge. Although the Supreme Court has recalled that good faith cannot become a purely moral or discretionary assessment, but must be analysed in accordance with the parameters set out in the Insolvency Act, practice shows that its interpretation remains especially sensitive in each specific proceeding and conditions real access to the second chance.
On the one hand, some courts are applying a rigorous interpretation of the requirements for accessing the discharge. Certain recent rulings show a tendency to reinforce the analysis of the debtor’s prior financial conduct, the origin of the indebtedness and the level of diligence maintained when taking on financing.
In practice, this translates into a growing relevance of documentary evidence. Old contracts, banking information, documentation relating to credit operations or elements linked to the debtor’s financial situation now carry decisive weight in proceedings where, on many occasions, such documentation is no longer kept or is hard to access with the passage of time.
Creditor institutions
The situation becomes especially complex given that part of that information is held by the creditor institutions, which do not always actively cooperate in the proceedings. As a result, some debtors face significant difficulties in evidencing circumstances relating to financial operations entered into years earlier, precisely within a second chance mechanism designed to ease the economic recovery of people in a situation of insolvency.
Some recent rulings reflect precisely this trend towards greater judicial control over the evidencing of good faith and over the individualised analysis of the applicant’s financial conduct.
In parallel, other judicial bodies appear to maintain an interpretation more aligned with the rehabilitative purpose of the second chance and with the spirit of Directive (EU) 2019/1023, prioritising the possibility of the good-faith debtor’s economic reintegration over excessively restrictive interpretations of the mechanism.
This debate is no small matter. The second chance was created precisely to allow insolvent individuals to overcome situations of structural over-indebtedness and rejoin economic activity, preventing certain debts from becoming a permanent financial sentence. You can review the basic requirements in our guide to the Second Chance Law.
For this reason, one of the system’s great challenges is to strike a reasonable balance between preventing abusive conduct and preserving the economic and social purpose of the mechanism.
Public credit and the second chance
In any case, the Supreme Court’s recent doctrine has indeed provided relevant clarifications on questions that had been creating significant legal uncertainty since the insolvency reform.
Particularly significant is the interpretation regarding public credit. The Supreme Court has confirmed that the legal limit on the discharge in respect of the Tax Agency and Social Security operates independently for each public creditor, which has a relevant practical impact in numerous proceedings and broadens the effective scope of the discharge in certain cases.
Likewise, the High Court has specified that the legal limitations on the discharge of public credit do not extend to subordinated public credit, an especially relevant point in relation to certain interest, surcharges and penalties.
Tax liability derivations
Another point of particular relevance affects tax liability derivations. The recent doctrine clarifies that the existence of a derivation does not automatically imply exclusion from the second chance mechanism. It will be necessary to analyse whether specific circumstances exist that allow fraud, wilful misconduct or bad faith to be found in the debtor’s conduct.
This question is particularly relevant because it avoids turning certain administrative derivations into automatic grounds for excluding the discharge, thereby reinforcing the need for an individualised analysis in each case.
The future of the second chance
Beyond these clarifications, however, the real debate seems to have shifted towards the evidentiary and procedural terrain.
The growing practical relevance of individualising credits, justifying past financial operations and evidencing certain economic circumstances may end up considerably raising the technical complexity of proceedings that were precisely meant to offer a swift route to recovery for insolvent individuals.
In this context, the risk lies not only in the interpretative disparity between judicial bodies, but also in the effective access to the second chance being conditioned by the debtor’s ability to documentarily reconstruct economic decisions taken years earlier.
For this reason, the real challenge no longer consists solely in determining which debts can be discharged or what the legal limits of the system are, but in ensuring that the second chance remains a mechanism that is genuinely accessible and functional for those who meet the legally established requirements.
How case law evolves over the coming months will be decisive in confirming whether this new doctrine finally manages to consolidate more uniform criteria or whether, on the contrary, it continues to fuel interpretative differences in a matter especially sensitive to legal certainty, economic stability and the rehabilitative function that inspires the current second chance system. If you are in a situation of over-indebtedness and want to assess your case, you can raise it through our contact page.