The Second Chance Act: what the self-employed and businesses need to know in 2026
The Second Chance Law has established itself as a key tool enabling self-employed individuals and over-indebted private individuals to write off debts they cannot afford to pay and restart their business activities. It is, however, important to have a clear understanding of its requirements and the latest court rulings, as the details make all the difference.
What it is and who it protects
The second chance mechanism allows natural persons — both private individuals and the self-employed — to obtain discharge of their outstanding liabilities, that is, the cancellation of debts they cannot pay following proceedings before the Commercial Court. Commercial companies (SL, SA) are excluded from this route and must resort to ordinary insolvency proceedings.
The 2022 reform of the Insolvency Act significantly simplified the process: it abolished the preliminary phase of insolvency mediation, channelled the entire procedure through the courts and streamlined the resolution of applications for discharge, reducing both time and costs.
Key points to bear in mind
- Public debts: the discharge of debts owed to the tax authorities and the National Insurance scheme is limited to a maximum amount per body; any amount exceeding that limit must be included in a repayment plan.
- Two possible routes: discharge with liquidation of assets or discharge with a repayment plan, which in certain cases allows the primary residence to be retained. Choosing one or the other is a strategic decision.
- Debt registers: following discharge, it is the court’s responsibility to request, of its own motion, the removal of the debtor’s details from the debt registers.
- Duration: following the reform, the procedure is now processed more efficiently by the Commercial Court.
A very important recent development
Judicial practice has introduced a significant caveat: debts that are not expressly disclosed during the proceedings may not be automatically discharged. This requires the debtor to identify and declare all their liabilities from the outset, a task that should be prepared thoroughly to avoid any surprises later on.
Therefore, before submitting any documents, a preliminary feasibility analysis is essential: checking whether the requirements are met, drawing up a complete and accurate inventory of liabilities, and deciding which of the two routes is most favourable in each specific case.
How can we help you?
At SF Abogados, we support companies and self-employed individuals in preventing and managing these situations. If you need advice on this matter, our team is at your disposal.
