Second chance and public debt: the Supreme Court’s new doctrine (February 2026)

The second chance regime lets private individuals and self-employed people write off the debts they cannot pay through the discharge of unsatisfied liabilities. Its most contested aspect was the treatment of public debt —amounts owed to the Tax Agency, Social Security or town councils—, which the law capped on disputed criteria. On 18 February 2026, the Spanish Supreme Court set, for the first time and in a group of judgments, how far that discharge reaches. We analyse what it decided and what it means for the debtor.

What the discharge of unsatisfied liabilities is

The discharge of unsatisfied liabilities —the second chance mechanism governed by the Consolidated Insolvency Act (TRLC)— allows an individual, whether a consumer or self-employed, to clear outstanding debts after an insolvency procedure when their assets fall short of paying them. It is granted to the good-faith debtor, which requires, among other conditions, not having been convicted of certain economic offences in the previous ten years and not having caused or aggravated the insolvency wilfully or through gross negligence (insolvency classified as culpable).

The discharge comes in two forms: the one that follows the liquidation of the debtor's assets, under its articles 501 and following, and the one obtained by committing to a payment plan for a set period, under its articles 495 and following. The procedure is handled before the commercial courts.

Public debt: the point of conflict

The most significant obstacle was the treatment of public debt. Article 489.1.5 of the TRLC excludes public-law claims from the discharge, save for some limited quantitative thresholds. After the reform brought in by Law 16/2022, which transposed Directive (EU) 2019/1023 on restructuring and insolvency, it was disputed whether that exclusion was compatible with EU law. The Court of Justice of the European Union, in its judgment of 7 November 2024 (joined cases C-289/23 and C-305/23), warned that a general exclusion of public debt is only permissible where it is duly justified and well defined, serving a legitimate public interest. How to apply all this in Spain remained to be settled.

The Supreme Court's doctrine (18 February 2026)

That day, the First Chamber of the Supreme Court handed down a group of judgments —from STS 259/2026 to 264/2026, of which the leading one is STS 264/2026 (Chamber 1, 18 February 2026, appeal 3528/2024, ECLI:ES:TS:2026:440)— constituting its first full doctrinal ruling on the second chance regime after Law 16/2022. Its main criteria:

• The dischargeable public debt does not depend on which body collects it. The thresholds of article 489.1.5 apply to any public creditor: not only the Tax Agency or Social Security, but also autonomous regions, provincial councils and town councils.
• The discharge thresholds apply per public creditor, not globally. Debt is discharged in full up to EUR 5,000 per public creditor and, beyond that, 50% up to a maximum of EUR 10,000. Being an individual limit, the debtor may discharge up to EUR 10,000 against the Tax Agency and another EUR 10,000 against Social Security.
• Subordinated public debt is discharged in full. Interest and surcharges, classified as subordinated, are entirely discharged: the limitation is not proportionate against a claim of that nature.
• A derivation of liability does not automatically bar the second chance. STS 264/2026 corrects a widespread practice: the existence of a derivation of liability for tax or Social Security debts does not, on its own, prevent the discharge. It operates as a ground for exclusion only where it is shown to stem from fraudulent conduct comparable to conduct deserving a very serious penalty.

The judges' standard: the review of good faith

Beyond public debt, the judgments reinforce the role of the insolvency judge. The commercial court must verify of its own motion that the good-faith requirements are met and that no ground for exclusion exists, whether or not the creditors object. Good faith ceases to be an issue examined only if someone disputes it: the review falls to the judge in every case. For the debtor, this means the application must be prepared rigorously —evidencing their conduct and the origin of the insolvency—, because judicial scrutiny will be demanding.

How we handle it at RCM Legal

This doctrine significantly broadens the scope of the second chance regime for self-employed people and individuals indebted to the authorities: more public debt is now dischargeable and a mere derivation of liability no longer closes the door. At RCM Legal we study your situation, assess whether you meet the good-faith requirements and which of the two forms —liquidation or payment plan— suits you, and prepare the application with the detail the judicial review demands. If you carry debts you cannot pay, including public ones, tell us about your case: we will tell you frankly what part can be cleared and how. We explain the general framework of the second chance regime in a companion piece.