At present, there is no law allowing personal bankruptcy in mainland China. There is only one Enterprise bankruptcy Law of the People’s Republic of China to regulate the bankruptcy procedure of enterprises. However, the time when China will enact and promulgate the personal bankruptcy Law is remained unknown. Professor Li Shuguang, director of the Research Center at China University of Political Science and Law regarding Bankruptcy Law and Enterprise Restructuring, said that “the bankruptcy process is essentially a reallocation of social resources. A complete bankruptcy system can promote the market to play a decisive role in allocating resources. In this regard, personal bankruptcy cannot be absent in the market economy system.” A famous magazine called “The Jurisprudence and the Society” published one article with the topic of the Research on Personal Bankruptcy System, and in such article, it manifests that the most important character for distinguishing whether a country is a market economy shall be the bankruptcy law system and mainly the personal bankruptcy system. The personal bankruptcy system has basically been established in developed countries or regions.
It may be inferred from the terms of the laws and regulations regarding personal bankruptcy in other countries or regions that the core of the personal bankruptcy system is that the debtor shall pay the debt as much as possible, and the relevant authorities will adopt income supervision and consumption restriction on the debtor, and the debtor’s personal debt may be exempted according to unless decision made by competent authorities. Those income supervision and consumption restrictions concerned are similar to the measures taken by Chinese authorities to regulate those who fail to execute valid judgment or decision, but the debts borne by those will not be reduced or exempted. In practice, not all the individuals listed as being in breach of their responsibility to execute valid judgment or decision are scoundrels who deliberately default on their debts. For the individual debtors who failed one of their investments or have experienced difficulties in financing periodically, the absence of the personal bankruptcy system will likely cut off the chances for them to avert their financial crisis. When the debtor is actually insolvent, and when the absence of personal bankruptcy system makes it impossible for creditors to resolve cases that are no longer enforceable in reality, both creditors and debtors will be trapped in a bad debt in different ways to certain extent. Fighting against each other in a bad debt will undoubtedly lead to more dangers and social problems.
The “Yu Huan Case”, the most famous criminal case and tragedy took place in 2016, was just caused by the infringing malicious actions taken by the creditors towards a debtor and her son. In fact, the news that the debtor committed suicide or was infringed upon because of improper debt collection and that creditors were fined for illegal actions taken to collect debts has long been common, and as legal inquiries for us, being as China attorneys, to deal with, there are also individuals who are stalked or infringed by others due to debt collection issues and look for our legal advice. If the personal bankruptcy system may be introduced in a timely manner, not only the creditors can be paid off more fairly, their debt collection costs will be reduced, and they will not be subject to legal sanctions for their rush to collect debts through improper or illegal means, but also the debtors and debtors families involved in financial crisis may be protected and get out of the bad debts and have a chance to a new start. It may better safeguard the personal and property safety and social stability of all the parties involved.
It is worth mentioning that the legal professionals in Shenzhen is standing at the forefront of the country as to how to construct a legal system for personal bankruptcy in mainland China. The Shenzhen Intermediate People’s Court submitted to the Standing Committee of the Shenzhen Municipal People’s Congress an investigation report on the legislation on personal bankruptcy and the Draft Regulations on Personal Bankruptcy of the Shenzhen Special Economic Zone (suggestions for legislation). The Shenzhen Municipal People’s Congress also suggested that it should continue to organize efforts to study the issue of personal bankruptcy, put forward legislative proposals to the Standing Committee of the National People’s Congress, and promote legislation on personal bankruptcy.
Nowadays, China is perfecting the personal registration system and establishing the personal credit and social security system. We hope that the introduction of the personal bankruptcy system may be expedited in order to meet the development needs of the society.