Liu, Y. and C. Rosenberg (2013): “Dealing with Private Debt Distress in the Wake of the European Financial Crisis”, IMF Working Paper, WP/13/44
Prepared by Katharine Christopherson (LEG)
The government has also put in place a mechanism that supports a voluntary system (opt in by banks) for out -of-court workouts for residential mortgage debtors, which only applies to the most vulnerable (the so called “Code of Good Practices”). This mechanism, which has recently been reformed to expand its coverage to allow a larger group of individuals to qualify, sets up a framework that includes restructuring of the debt, dacion in pago (‘datio in solutum’ or ‘deed in lieu of payment’) if the debt after restructuring is unviable. Separately, the authorities also established a mandatory suspension of evictions of up to 2 years.
The Spanish insolvency law entered into effect in 2004, and was substantially reformed in 2009 and 2011. Despite the recent reforms aiming primarily at supporting reorganization of viable firms, the system in practice is still not working as effectively as envisaged, as the majority of insolvency filings in Spain end in liquidation.
Official data reported that in 2012 around 8 percent of outstanding mortgages were restructured.
The authorities are preparing a draft entrepreneur law that would also include a discharge mechanism.