Can a highly indebted family declare bankruptcy?

  • In Spain, there is a law since 2004 that allows individuals to declare themselves insolvent, but it is very complex to apply.
  • The cost of this judicial process usually ranges between 10,000 and 12,000 euros.
  • The families in bankruptcy can not request lawyer ex officio for these cases.
  • The families who filed for bankruptcy in 2011 fell by 3.9%.

The National Institute of Statistics (INE) has announced this week the number of bankruptcy contests that have occurred in Spain during 2011. In total, 5,821 companies and 934 families have been affected, according to the Bankruptcy Procedures Statistics.

It is striking that the number of families that declare themselves insolvent is considerably lower than the previous year: 3.9% less than in 2010, despite the fact that the evictions continue to grow and the debts in the family nucleus continue to increase with the national unemployment figure.

The reason lies in the complexity of applying this rule that, although it does not allow canceling debts, you can postpone certain payments according to the possibilities of each person.

A law for indebted people that is worth thousands of euros

Since September 2004, with the entry into force of the Insolvency Law, not only companies can declare bankruptcy, but also natural persons who are facing an insolvency situation.

It should be remembered that a bankruptcy proceeding is a legal proceeding to ultimately save companies or individuals in a situation of insolvency. It is done through an agreement with the creditors about the payment and terms of the debts, to avoid this way the liquidation in the case of the companies.

You have to pay for the costs of lawyers, solicitors, publication of edicts …

However, and despite the good intentions of the Law, it is important to know the difficult feasibility of applying this rule for those with financial problems.

First, and according to the economist and advisor to families with many debts of the World Bank of Women, Mercedes Salas, this law “is designed for companies, since families have very little room for maneuver. ” The reason, for Salas, is the high legal costs: lawyers, solicitors, publication of edicts, among other expenses.

“It is a very expensive judicial process, which does not allow access to a lawyer by trade. The judicial costs can range between 10,000 and 12,000 euros. If a family wants to benefit from the Insolvency Act is because they have no money to pay their debts, then How can you cover the costs? “Salas questions.

What can be achieved by declaring insolvent?

This judicial process consists of bringing together all the creditors of a person in order to analyze their financial situation. Then a report is presented and the payment agreement is renegotiated. Among the positive effects that the lawsuit can have for the debtor are:

  • It paralyzes the claims filed for non-payment and the execution of the assets that are being processed, including mortgage loans (only for one year).
  • Interrupts the accumulation of interest on unpaid loans.
  • It allows resuming the credit contracts that had been interrupted due to lack of payment.
  • The debtor can get deferments and debt reduction.

Despite the apparent benefits that may be declared insolvent, if in a hypothetical case could be paid judicial costs must be borne in mind that in the case of a mortgage, the bank can carry out an embargo or auction of your home without waiting to said contest.

Experts advise to avail themselves of this law if the debtor’s assets are much higher than the debt itself. However, it is always advisable to go hand in hand with advisors before starting a process of this type. There are some entities, such as the World Bank for Women, that offer free financial advice to families with big financial problems.