Like many words, ‘embargo’ has different connotations in Spain to what it does in the UK. For most British people when you talk about an embargo you picture a prohibition from one country on another.
So it comes as something of a shock to some people with Spanish bank accounts to discover that rather than applying to nations, individuals here can be embargoed too.
The freezing of Spanish bank accounts and the automatic withdrawal of funds from them is something which we have received many enquiries about at Ábaco. Although every case will be slightly different we have written this question and answer article in order to cover some of the main issues that there are when it comes to chasing debts through embargoes.
What is an embargo?
An embargo happens when a debt remains unpaid. The government office or a court can order an embargo of your bank account in Spain which means that money can be taken directly out of it without your direct permission. If there is insufficient money in the account to cover the debt then assets can also have an embargo against them.
Who is able to arrange an embargo?
An embargo can only be authorised by a judicial authority or administration. It comes from either a court order or from a government public administration office in Spain, such as the tax office. It cannot be organised by an individual against any other unless the demand has passed through the courts and the courts have agreed to an embargo.
Many embargoes are as a result of tax defaults, for example in relation to non payment of IBI (council tax), non-resident and resident income tax. A bank can order an embargo for missed mortgage payments or if you have defaulted on a loan.
How might you be informed that an embargo will take place?
The cause of an embargo is always a debt. If you owe someone money and it has been agreed by the courts or you owe outstanding taxes or payments to a government department such as the tax authority then they will have already notified you that you owe them money. The tax authority does not need to go through the courts to apply an embargo in Spain.
Following notification, if you still haven’t paid the debt, then an embargo might be arranged but you should be notified of this too. Sometimes people miss their notifications because they are non-residents and no-one is there to sign for or receive the notification when it arrives at the house. This is one reason why it is beneficial to have fiscal representation in Spain if you are a non-resident.
Further notification might be made in the BOE. This is the Boletín Official del Estado However, it is highly unlikely that you will see this as it changes daily and is virtually impossible to check on a regular basis. We advise non-resident clients to ask a neighbour to check their letterbox for notification of undelivered items requiring a signature. Of course, having a fiscal representative can help ensure no unwanted notifications are received too.
How will you know there is an embargo?
The authority who is calling in the debt will let you know that a debt needs to be paid first. They will inform you that if the debt remains unpaid then an embargo may be made. As mentioned above, the notifications are usually sent to your Spanish address which is when the problems can occur.
If you have a fiscal representative in Spain who takes care of your taxes for you then you should not owe the Tax Authority any money in the first place. However, if for some reason it was found that tax was still outstanding, your representative would receive the notification enabling them to find out what the problem is and rectify it before an embargo takes place.
You can ask your bank to keep you informed in case there is an embargo but this is likely to be after the event. If you know there is the possibility of an embargo and/or that a bill remains unpaid you could ask the issuing authority to let you know if one is about to take place.
What steps should you take once you know there is an embargo on your account?
Your first step is to contact your bank and ask them which authority has decreed the embargo. Having this information, you will then need to contact the source of the embargo directly to check the total amount that you owe and must pay to settle the debt.
There should also be a reference number on the embargo itself which will give an indication of which department is responsible.
Once you know how much you owe you can either pay the debt directly to have the embargo removed or keep the embargo until the total amount is withdrawn from your account.
What preventative measures can you take to make sure this doesn’t happen to you?
The most important action you can take is to keep your accounts in order. Many embargoes are the result of tax payment errors and debts. Having a fiscal representative can help ensure that taxes are paid on time and you have no debts with the Spanish Tax Authority.
Make sure that you keep up your payments with other organisations and departments too. Loans and mortgage payments can be another source of embargoes and must be kept up to and paid on time. There is little flexibility in the system, so don’t expect your bank or mortgage issuer to do the chasing. If you don’t pay, an embargo could well be the next step.
If you are having problems making a payment then do try approaching the relevant department, authority or bank. It’s in everyone’s interest to find a solution and the problem is more difficult to rectify afterwards. It’s not easy approaching your mortgage lender, for example, but once the discussion is in progress you will at least know what to expect.
If your salary/pension is paid into the bank account are you still able to access some money to live on?
Yes. The embargo only freezes the amount owed and other funds should be available to you. A specified living amount is also protected from the embargo in Spain. Only an amount exceeding the minimum wage established by the government can be embargoed.
This means that currently around € 707,70 (2017) should still be free for you to use. Anything above this, however, would go towards payment of the debt until the total embargo amount is met. Your utility bill payments should also still be honoured if there is more in your account than the embargoed amount.
In some cases an embargo might be ordered on assets instead such as a car or property.
Can you reach an agreement whereby you pay in instalments?
Payment in installments can only be agreed before the embargo is settled. This is another good reason for making sure you open up a dialogue with the authority you owe money to. Prior to the embargo you can approach them and negotiate a way of paying off the debt in smaller chunks.
If the embargo is already ordered and your account is frozen, you can only agree the payment in installments where part of the debt has not yet been embargoed.
Can you appeal?
When you are notified of the embargo you will have a window in which to appeal. This is another reason why it is so important to have some arrangements in place to receive mail or a representative to receive it for you.
Can you apply to embargo someone else’s bank account as an individual who is owed money?
Yes, but only through the judicial process. You will need to bring a lawsuit against the debtor to court and ask for an embargo as a preventative measure in case of non payment of the debt. The court will then decide whether to decree this or not.
Is it just bank accounts that are embargoed or can property be embargoed too?
Properties and other assets can be embargoed as well. There is an order of assets that is established by law:
- money and bank accounts
- credits and rights that can be applied to in the short term e.g. shares, deposits and other financial products
- jewellery and art
- rental incomes
- interest and other forms of income
- movable assets e.g. car, boat or anything that can be sold
- shares in companies
- salaries, pensions and income from work
- credits and rights that can be applied to in the long term
What is the difference between having an embargo on your account and your account being frozen?
An embargo is always linked to a debt and is ordered by an authority. It means that money will be removed from your account to meet the amount of the embargo. This might be a one off payment if there are sufficient funds or last over a period of months, or even years, if not. You can still use your account to access any remaining money which will also go to pay your bills.
An account can be frozen for many other reasons. For example, if one of the account holders has died in the case of a joint account. It can also be frozen if the bank does not have any identification documents for you on record. Quite recently banks were requesting that people bring in their passports in order to ensure they had the correct identification and residence status on file.
If your bank account is frozen the good news is that usually your direct debits and utility bills will continue to be paid and your bank should keep you informed about the situation.
Embargoes are a part of the way in which the system works in Spain. Understanding their function and how to avoid them will hopefully mean that you never need to know more about them. However, If unfortunately at any stage you find yourself in such a situation, we can recommend a law firm to you who can help with this type of case.