Bankruptcy

The Supreme Court (TS) analyzes the case of an individual (not a business) who ends up in a consecutive bankruptcy after failing an extrajudicial payment agreement. That bankruptcy was declared when the regulations prior to the reform of the Bankruptcy Law of 2022 were still in effect, which in this type of bankruptcy almost automatically led to opening the liquidation phase . Later, with the reform in force, the debtor requested the exemption from debts (the “second chance”) but through the payment plan , because he wanted to keep his primary residence , which was encumbered with mortgages that practically “consumed” all its value.

The question was whether the fact that liquidation had been opened under the old regulations prevented, by itself, opting later for the exemption with payment plan provided in the reformed system. The TS rejects a rigid interpretation that automatically closes that door, because it would go against the spirit of the second chance and the purpose that inspires the current regime.

Now, the TS makes it clear that it is not enough to simply call any proposal a "plan." A payment plan , to be valid, must include a minimum content such as a payment schedule for the exonerable credits that the debtor commits to attend. In this matter, the proposals presented (including the one modified by the insolvency administration) did not incorporate that payment of exonerable credits, they focused on recalculating mortgage installments and payments linked to overdue secured debt, which does not replace the essential requirement of the plan. This defect was decisive to dismiss the exemption through this route.

Furthermore, the TS specifies that in cases of “ insolvency without assets ” (for example, housing without realizable value for creditors as it is fully covered by charges), the exemption can be channeled as exemption after liquidation or an equivalent formula, without depending on a payment plan to retain the asset.