The pandemic’s onset, followed by its economic fallout, reshaped many sectors through ERTE measures and restrictions. This upheaval pushed up energy costs and raw materials, which soon showed up in consumer spending. In Alicante, 2021 saw a dramatic rise in indebtedness among self-employed people and households, with the volume of Second Chance Act applications exploding—five times higher than the prior year, from 900 to roughly 4,350 requests.
The Second Chance Act, enacted in 2015, is designed to help small businesses, freelancers, and individuals who face near-insolvency. Its goal is to make repayment more flexible, often through out-of-court settlements or a structured agreement that sets terms and amounts. Eligible cases include debt up to 5 million euros and those pursuing a plan to repay in installments, provided the debtor acted in good faith.
In the initial years, demand for relief under this law was modest due to limited awareness and a relatively favorable economy. However, the covid crisis, record cost increases, and accelerating inflation transformed Alicante’s landscape, driving demand up fivefold.
More than 300 bankrupt companies and individuals in the state are using a law to pay off their debts
Ana Isabel García, a partner at the law firm Repara tu Deuda, which specializes in these matters, notes that the law exists to prevent the ruin of people trapped by debt for decades. The framework can help self-employed individuals who had to close their doors because of debt, while banks continue to press for repayment.
She adds that the recent surge in applications reflects the strain on family and business finances after two years of waves of Covid, restrictions, and now inflation. The Second Chance Act is not a trivial process; creditors must be engaged first, and negotiations for an out-of-court settlement are pursued. If a settlement cannot be reached, the matter goes to court, where a judge decides. Many cases do not reach court, and settlements or debt reductions are often achieved, sometimes including debt cancellation.
January is a turning point for many cases
The post-holiday period, when households tighten budgets after Christmas, becomes a critical time for many applicants. Most requests to benefit from the Second Chance Law come in the first month of the year, and the trend has been steadily upward. In Alicante province, 1,375 applications were filed at the start of 2022, nearly a third of the previous year’s total. The jump from January 2021 to January 2022 is stark, with 753 and 104 filings respectively in those two prior years.
Ana Isabel García observes that the current economic strain pushes families to seek additional income, sometimes through overtime to cover holiday expenses. When those efforts fail, people can find themselves in a precarious situation. The issue extends beyond individuals in debt to include those who co-sign for relatives to buy a home or start a business, creating broader financial risk.