Personal Bankruptcy in China

Within the framework of the existing bankruptcy legal system, there are a series of differences in the classification of bankruptcy law in various states, such as New Zealand, Australia and Canada. The focus of this “classification” is “whether it is necessary to distinguish between the the legal provisions of the personal bankruptcy and corporate bankruptcy in terms of legislation and justice, which is also one of the hot topics in legal circles. At least for now, a popular trend seems to be to dismiss such “distinction”, which is “looking the insolvency legal system as a whole”. If we just observe it from the perspective of legal logic, this view has its rationality on a certain extent. However, as long as we combine the legal theory with the practice, we will find that there are a series of crucial differences between personal and corporate bankruptcy both at the theoretical level and in the approach of reasoning when coping with the relevant cases (for example, corporate bankruptcy needs to be differentiated based on the size of the enterprises, personal bankruptcy should consider the basic survival of the debtor in addition to the repayment of the debts.) Such crucial differences make it impossible to forcibly unify these two (personal and corporate bankruptcy law) in one legal system; Otherwise, on the one hand, there will be the unnecessary costs of re-legislation. On the other hand, it will also cause unnecessary to the parties (whether individuals or enterprises) and judges to make judgments in judicial practice. Therefore, based on the above opinions, the essay will demonstrate the distinctions between personal and corporate bankruptcy law, with the aim of explaining a conclusion: personal bankruptcy and corporate bankruptcy are two completely different systems; Therefore, in terms of legislation, not only should these two not be unified, but also needs to be further distinguished on the basis of the existing law.

This thesis is a comparative research study looking at the question of whether China is an exception when considering the lack of necessity for the introduction of laws relating to personal bankruptcy. Firstly, this thesis discusses the function of a personal bankruptcy system and considers how personal bankruptcy law functions as a form of social insurance from a theoretical perspective. Then, the thesis discusses how different jurisdictions design the framework of personal bankruptcy law. Countries embrace the insurance function of insolvency law differently. In addition to describing the institutional framework in different jurisdictions, it also explores how the law is shaped and what Chinese policymakers can learn from the experiences of the legislative process in other jurisdictions. After learning from experiences from other countries, this thesis discusses the necessity for the introduction of personal bankruptcy law in China. It argues that the growth of consumer credit will lead to individual over-indebtedness. Accordingly, Chinese policymakers should think about the response to over-indebtedness in advance. Then, the thesis demonstrates that current solutions to overindebtedness are not effective so that a personal bankruptcy system is necessary. However, introducing personal bankruptcy law is not an easy task in the Chinese context and this thesis discusses the obstacles to introducing a personal bankruptcy system in China. It focuses on whether there are any obstacles relating to infrastructure and cultural factors likely to be encountered when introducing the personal bankruptcy law. In the last chapter, this thesis analyses the institutional framework of personal bankruptcy regulation at local level. It discusses how lawmakers in China embrace the insolvency law’s insurance function.

In recent years, the need to enact a personal bankruptcy system has become progressively urgent in China. With increased social acceptance, the practice of personal debt solutions in local courts has been booming. The promulgation of the Personal Bankruptcy Ordinance of the Shenzhen Special Economic Zone in 2021 is an important event of epoch‐making significance in China's bankruptcy legislative history. The revision of the Enterprise Bankruptcy Law 2006 has been included in the legislator's working plan. Whether a personal bankruptcy system could be introduced during the revision has become a major focus. The challenges to personal bankruptcy legislation in China include the public concern that debtors abuse the system to evade debts; the judicial pressure caused by too many cases; and the lack of an out‐of‐court mediation mechanism. The personal bankruptcy system is one of the most inconsistent legal fields in the world. China's future personal bankruptcy law will confine its discussion to the subjects of law, bankruptcy discharge period, and regulation of debtors' debt evasion. Legislators should refer to the advanced legislative experience and set up the personal bankruptcy system by combining it with China's national situation.

The core of personal bankruptcy is the exemption system, which gives honest and unfortunate debtors a chance to start over and guarantees their basic rights of survival and development, is an important system for maintaining sound socio-economic functioning and for resolving difficult issues of court enforcement, not only in helping natural debtors in debt deadlocks in individual cases, but also in helping markets to recover as quickly as possible, thereby improving the overall well-being of society. However, throughout the world, whether it is a country that has established the personal bankruptcy system for a long time, or a country that is in the initial stage of exploring the personal bankruptcy system, personal bankruptcy exemption, a well-meaning legal system, has inevitably caused some negative effects and hindered the operation of the system as a whole. In order to guarantee the good operation of the personal bankruptcy exemption system in our country, we should establish such systems as the incentive system of the bankruptcy person with good faith and the property registration system to support the operation of the procedure, improve the link between personal bankruptcy exemption and civil law, Civil Procedure Law, company law, etc., in order to guarantee the validity and feasibility of personal bankruptcy exemption system, the procedures of debtor's application, administrator's opinion, Creditor's objection, relief and rescission are detailed.

Discussions on personal bankruptcy regulations are usually focused on the controversial effects of leniency on society, economy, financial markets, entrepreneurship, and labour supply. However, the methodology of measuring leniency has been limited to one-time legislative changes or some elements of the US personal bankruptcy system. In contrast, we create a composite index of personal bankruptcy legislations. We calculate the composite index for 25 EU countries and the US as a benchmark, validate the results, and rank the countries according to the leniency of their personal bankruptcy systems. We analyse the index scores by region, law origin, and the age of the regime. We conclude that the systems show high heterogeneity and cannot be clustered by region or legal origin assumed based on former studies. However, there is a strong association between leniency and the age of legislation. Results indicate that personal bankruptcy policies in the EU are usually launched as creditor-friendly and are later shifted to a more lenient direction.

With the increase in personal consumption and investment in China, debt defaults started to appear as a common phenomenon and also a challenge. These factors altogether have led to rising personal excessive debts. Therefore, as the personal debt crisis is getting more and more serious today, the society of China urgently needs a new effective mechanism that can resolve debt disputes between individuals. It is hoped that the personal bankruptcy legal system will become a remedy for over-indebted persons. Japan is the first country in Asia to establish the personal bankruptcy system, which has already established a relatively complete personal bankruptcy exemption system. On the basis of drawing lessons from the German bankruptcy law, Japan has also absorbed the advantages of the American bankruptcy law and improved the Japanese bankruptcy law system. Therefore, it is very beneficial for China to learn from Japan's personal bankruptcy system, because China urgently needs to establish a personal bankruptcy system and absorb the excellent experience of other countries.

Although Chinese policymakers have enacted a new bankruptcy system in 2007, they did not cover individuals in the system. Recently, Chinese legislators have recognised the necessity of a personal bankruptcy system. Legislators expect a personal bankruptcy system can address unenforceable cases in the judicial system and promote entrepreneurship. Against this backdrop, Shenzhen personal bankruptcy regulation has been introduced. The regulation has provided several treatment to individual over‐indebtedness: bankruptcy, debt reorganization and compromise. By theoretically analyzing the institutional framework of the regulation, this paper considers that it can partly achieve legislative objectives.

Under modern bankruptcy law, individual debtors enter bankruptcy proceedings mainly to obtain debt relief. Therefore, the exemption system is not only a part of the Personal bankruptcy system but also plays a core role in the Personal bankruptcy system. However, the debtor's debt relief is based on the consideration of harming part of the creditors' interests in repayment, which poses an ethical challenge to the Personal bankruptcy relief system. Therefore, how to balance the interest relationship between creditors and debtors in the personal bankruptcy exemption system and promote the orderly development of the social market economy, this paper will discuss the model selection, scope of application, inspection period and other aspects.

With more domestic pilot explorations launched in China, alternative debt adjustment regulations and bills relating to personal bankruptcy are thriving. This article aims to familiarize the readers with both the economic and legal necessity of a personal bankruptcy system as well as the feasibility of future legislation in China by examining publicized reports and present regulations. Past decades have witnessed the take‐off of China's economy along with prevailing trends in higher debt ratio, more credit loans, and pan‐commercialization. The proliferation of over‐indebtedness propels the need for personal bankruptcy regime. Given the status quo, some alternative legal methods are implemented. By deconstructing the existing regional regulations, this work identifies both progress and drawbacks of current debt adjustment rules from three angles: creditors' benefits, debtors' benefits, and social benefits. After identifying the need for personal bankruptcy legislation, this contribution focuses on the feasibility of a personal bankruptcy system in China. Several salient issues are discussed in three aspects, including political implications, cultural resistance, and social conditions. These unique factors should be considered in forthcoming legislation in China in order to secure a more suitable system.

With the development of commodity economy, loan consumption is becoming more and more common. Under this consumption mode, debtors are very likely to fall into the vicious circle of insolvency, which is a great obstacle to the development of individuals and society. The emergence of personal bankruptcy system has helped debtors get rid of debt difficulties and promoted a new cycle of social economy. The establishment of personal bankruptcy system is a correct way to conform to the historical trend. In the face of the vacancy of China's long-term personal bankruptcy system, this topic explores the basic way to construct the personal bankruptcy debtor's debt avoidance system in China by analyzing the obstacles to the establishment of personal bankruptcy in China, and analyzing the existing personal bankruptcy systems in the continental law system and the Anglo American law system. And based on the key historical node of the promulgation and implementation of the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, we pay attention to the real situation of the implementation of the regulations to discuss the construction of the debt avoidance system of personal bankruptcy debtors in China.

Nowadays, the establishment of a nationwide personal bankruptcy system as soon as possible has been a unified view in academic circles. However, the specific setup of this system and the connection and interaction of various supporting systems are still hot issues of academic controversy. From the initial exploration to the continuous prosperity of the local pilot works, the rich pilot experience provides a practical basis for theoretical research. At the same time, new reform trends and changes have emerged in the international frontier legislation. Therefore, this research attempts to give suggestions for the procedural design of the establishment of a national personal bankruptcy legal system in China. Drawing on new experiences and new models domestic and abroad, the selection of personal bankruptcy procedures should adhere to liquidation as the criterion, and attach importance to the role of reorganization, as well as maintain the stability of social and economic order and promote the development and improvement of the legal system.

In the context of the modern market economy, the impact of personal debt issues on the stability of the social credit system has become increasingly significant. The implementation of the 'Shenzhen Special Economic Zone Personal Bankruptcy Regulations' in 2020 marked the entry of China's personal bankruptcy system into a pilot phase, with the credit repair mechanism being crucial for the debtor's rehabilitation. This study focuses on the Shenzhen pilot project, using empirical analysis to examine the design and effectiveness of the credit repair mechanism. It finds that through measures such as the construction of a digital information platform, clarifying conditions for credit repair, and involving social forces, Shenzhen has initially established a credit repair system. However, it still faces challenges such as legal inconsistencies, an incomplete information sharing mechanism, complex procedures, and insufficient public awareness. The study proposes optimization strategies, including improving national legislation, building a unified information sharing platform, simplifying repair procedures, and enhancing social credit education, to provide theoretical and practical references for the top-level design of China's personal bankruptcy credit repair mechanism.

We investigate a proposed reform of U.S. personal bankruptcy law which combines Chapters 7 and 13. The proposed reform obliges debtors in bankruptcy to use part of both their wealth and their future earnings to repay debt and therefore bases the obligation to repay in bankruptcy on debtors' ability-to-pay. An important function of personal bankruptcy is to provide partial wealth insurance for risk averse debtors by discharging some debt when debtors' ability to repay turns out to be low. However the current bankruptcy system encourages debtors to file for bankruptcy even when their ability to repay is high. The proposed reform maintains the insurance function of bankruptcy, but reduces debtors' incentive to take advantage of the system. Using simulation techniques, we show that the reform improves efficiency relative to the current system.

We investigate a new approach to the reform of U.S. personal bankruptcy law in which Chapters 7 and 13 would be combined. The proposed reform obliges debtors in bankruptcy to use part of both their wealth and their future earnings to repay debt and therefore bases the obligation to repay in bankruptcy on debtors' ability to pay from both sources. An important function of personal bankruptcy is to provide partial wealth insurance for risk-averse debtors by discharging some debt when debtors' ability to repay turns out to be low. However, the current bankruptcy system encourages debtors to file for bankruptcy even when their ability to repay is high. The proposed reform maintains the insurance function of bankruptcy but reduces debtors' incentive to take advantage of the system. Using simulation techniques, we investigate the properties of a bankruptcy reform in which both the wealth exemption and the postbankruptcy earnings exemption are optimized. We show that the proposed reform improves efficiency relative to the current system. Copyright 2000 by the University of Chicago.

The U.S. personal bankruptcy system functions as a bankruptcy system for small businesses as well as for consumers. When firms are non-corporate, debts of the firm are personal liabilities of the entrepreneur/owner. If the firm fails, the entrepreneur has an incentive to file for bankruptcy under Chapter 7, since both business debts and the entrepreneur's personal debts will be discharged. The entrepreneur must give up assets above a fixed bankruptcy exemption level for repayment to creditors, but future earnings are entirely exempt. Exemption levels are set by the states and they vary widely. We show that higher bankruptcy exemption levels benefit potential entrepreneurs by providing partial wealth insurance. The predicted relationship between the probability of owning a business and the exemption level is positive at low exemption levels, but may be either positive or negative at high exemption levels, depending on whether higher bankruptcy costs outweigh the gain from additional insurance. We test this prediction and find that the probability of families who are homeowners being self-employed is 35% higher if families live in states with unlimited exemptions rather than low exemptions. We also find evidence that families who are homeowners are more likely to start businesses and to organize their businesses as non-corporate rather than corporate if they live in states with high or unlimited, rather than low, bankruptcy exemptions.