Under a new set of family insolvency laws in Spain, those who have stopped paying their mortgage will be shielded from eviction from their homes.
Via translation from El Confidential, please consider Changing the Bankruptcy Law.
A bill in Parliament proposes new regulations on family insolvencies and will protect from eviction all those individuals who have suspended mortgage payments. The reform centers around rights of the ‘consumer debtor’ which will have full legal guarantees to negotiate funding agreements with creditors for half of the accrued liability and take up to fifteen years to pay.
The measure is justified by the massive overhang of family suffering in Spain, currently condemning many to full settlement and consequent total ruin of those who go through a bankruptcy process.
Currently, citizens drowned by their financial situation are usually first evicted from their homes and then have to drag existing debt perpetually throughout their working and social life.
The key amendment is on the table prior work involves a negotiation process that empowers the consumer to inform the Court their willingness to reach an agreement with its creditors. The deadline to apply this voluntary refinancing process is two months from the date it becomes impossible for someone to meet payment obligations.
The mere communication to the court of the start of negotiations suspends any eviction proceedings, including those declaratory judgments that may already be in process.
The law also amends substantial aspects of the settlement process in cases where a person fails to reach an agreement with creditors.
The liquidation plan will take into consideration assets of ‘consumer debtor’ while prioritizing the essential livelihood of the affected person.
The bill has an aim of preserving basic necessities and will also guarantee a ‘fresh start’ or second chance for people doomed to a dramatic insolvency. To that end, and in the worst case, the court may totally wipe out all existing debts including that portion not covered by asset liquidation. This is a radical change from the current procedural process.
Issues and Questions
How many will stop paying their mortgage simply to start a negotiation process?
How much harder will it be for someone to get a mortgage?
Lots of bad debt on the books of banks will have to be realized. How much more capital will Spanish banks need as a result?
There is no way for Spanish banks to pretend debts will be paid once they are discharged in bankruptcy.
This story is going to be interesting to watch from numerous angles.
Reader Bran who lives in Spain provides a more precise translation of the article. Bran writes ….
The reform is articulated from (around) the definition of the so called ‘consumer debtor’ who will be given full legal rights to suggest financial agreements to his creditors with haircuts of up to half of accumulated debt (liability) and delays of up to 15 years.
The debtor will be able to ask the courts to oversee the delinquency proceedings, both of consumer debt and mortgage debt. The judge will be responsible for deciding if the debtors offer (which must be at least 50% of what is owed) is acceptable. Mortgage debt would not be directly actable but would have to follow the judges oversight in a liquidation procedure that includes all other debt , and that would be designed to help ensure the debtor maintains essential possessions.
From the article it is hard to say exactly how the interpretations of the judge, and so forth would work in practice. What it does do is to delay foreclosure and provide judicial oversight and allow intervention in favor of the debtor. What is more, after any liquidation proceedings are finished (i.e. in bankruptcy) then any unpaid debt will be written off and the debtor may not be pursued for that debt after the proceedings.
Creditors may reject offers by the debtor and the debtor may appeal decisions, but the main point is that is not clear how a judge would rule when it came down to evicting the debtor.
All the best, Bran.
Mike “Mish” Shedlock