1st personal bankruptcy case marks a judicial breakthrough
The first judicial ruling in a personal bankruptcy case in China was delivered on Monday, four months after a local regulation on personal bankruptcy cases came into effect in Shenzhen in March.
Applicant Liang Wenjin, a 35-year-old Shenzhen resident who was saddled with debts amounting to 750,000 yuan ($115,621) after a failed business venture, submitted a personal bankruptcy reorganization plan to Shenzhen Intermediate People's Court in March.
Given that he has found a job after his start-up crashed and now earns about 20,000 yuan a month, the court granted him a restructuring process while allowing him to renegotiate an installment repayment plan with his creditors.
The "two firsts" in China－enacting a personal bankruptcy regulation and a local court giving a ruling in a personal bankruptcy case－highlight Shenzhen's success in piloting the resolution of such cases.
Individuals as well as enterprises play the central role in economic activity, so their financial difficulties need to be alleviated. As flexible employment becomes increasingly popular, the number of self-employed has been increasing, giving rise to debt disputes.
However, China only has a corporate bankruptcy law but no personal bankruptcy law. Therefore, while insolvent enterprises can apply for bankruptcy, individuals with heavy debts have no such orderly market-exit channel.
Shenzhen's personal bankruptcy regulation fills in this gap, as a person who has lived in and has been covered by Shenzhen's social insurance system for three consecutive years can apply for bankruptcy liquidation, restructuring or reconciliation if he or she goes bankrupt.
The regulation is not an "escape route" for trust-breakers but a "social insurance" for those running start-ups, and an effort to improve the market-exit mechanism and social credit system for individuals. No one can use the regulation to evade repaying debts, as the regulation requires debtors to truthfully declare their property, while connecting the bankruptcy registration system with the personal credit investigation system, setting up incentives for liquidation, and stipulating that the debtors desist from luxury consumption.
Personal bankruptcy does not mean unconditional debt exemption, but a reorganization of bankruptcy to encourage the debtor to actively raise money to repay his/her debts. The personal bankruptcy system holds the debtor accountable for the debts, and by setting relevant procedures, encourages the debtor to actively raise money and repay the debts, protecting the legitimate rights of creditors.
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