The personal bankruptcy system refers to a system in which when a natural person is unable to pay all his debts, he can liquidate or reorganize his property through legal procedures to discharge part or all of his debts and ensure his basic livelihood. The personal bankruptcy system has a long history and mature experience in some developed countries, but it is still in the exploration and pilot stage in the mainland.
What are the pros and cons of a personal bankruptcy system? What are the implications for the interests of debtors and creditors? This article will analyze from the following aspects.
- The purpose and significance of a personal bankruptcy regime
The main purpose of a personal insolvency regime is to resolve conflicts of interest between debtors and creditors and to achieve fairness and efficiency in debt settlement and asset distribution. The main significance of the personal bankruptcy system is as follows:
- For debtors, a personal bankruptcy regime can provide them with a legal way out of excessive debt, avoid endless debt collection and litigation, guarantee their basic standard of living and dignity, and encourage them to start a new life and work.
- For creditors, the personal bankruptcy system can provide them with a unified and orderly legal procedure for debt settlement and asset distribution, avoid them falling into ineffective collection and enforcement, protect their legitimate rights and interests, and reduce their losses and risks.
- For society, the personal bankruptcy system can promote the development of the market economy system and the construction of the socialist legal system, maintain social fairness, justice and stable order, and stimulate the vitality of social innovation and consumer demand.
- Scope and conditions of application of the personal bankruptcy regime
According to the Provisions of the Supreme People's Court on Several Issues Concerning the Pilot Work of Trial of Personal Bankruptcy Cases (for Trial Implementation), the current mainland personal bankruptcy system is only applicable to natural persons in the Shenzhen Special Economic Zone who have full capacity for civil conduct, are unable to repay debts when due, or obviously lack solvency, and do not maliciously evade debts or other acts of dishonesty. These natural persons include the following three categories:
- Natural persons engaged in freelance or other business activities and have not established an enterprise legal person or other organizational form in accordance with law;
- Natural persons who are jointly and severally liable for liquidation, or who are unable to repay their debts due or obviously lack solvency after assuming guarantee liability because they are members of internal management bodies, actual controllers, shareholders, etc. of an enterprise legal person or other organizational form;
- A natural person who is unable to pay debts due to consumption or other reasons or who is manifestly insolvent.
These natural persons may apply to the Shenzhen Intermediate People's Court for personal bankruptcy and submit relevant materials to prove that they meet the above conditions. After accepting the application, the Shenzhen Intermediate People's Court shall, according to the specific circumstances, decide whether to accept it, whether to rule on bankruptcy, whether to appoint a bankruptcy administrator, whether to convene a creditors' meeting, etc.
- Procedures and rules of the personal bankruptcy regime
According to the Provisions of the Supreme People's Court on Several Issues Concerning the Pilot Work of Trial of Individual Bankruptcy Cases (for Trial Implementation), the procedures and rules of the mainland personal bankruptcy system mainly include the following aspects:
- Liquidation of assets. After adjudicating personal bankruptcy, the bankruptcy representative will conduct an inventory, appraisal, sale, etc. of the debtor's property, and distribute the proceeds to creditors in the legal order. During the liquidation of assets, some basic daily necessities and necessities of the debtor, such as housing, furniture, clothing, food, medical supplies, etc., do not fall within the scope of liquidation and may not be sold or distributed.
- Debt restructuring. After adjudicating personal bankruptcy, the debtor may propose a debt restructuring plan to the court, and after the creditors' meeting is adopted and confirmed by the court, the debt restructuring is implemented. The debt restructuring plan may include deferred repayment, partial forgiveness, transfer of property, labor conversion, etc., but shall not harm the legitimate rights and interests of other creditors. During the debt restructuring period, the debtor shall perform its obligations in accordance with the plan and accept the supervision and guidance of the bankruptcy representative.
- Debt forgiveness. After the liquidation of assets or debt restructuring, if the debtor still has outstanding debts as they mature, he can apply to the court for debt relief. After reviewing the debtor's application, the court may, on a case-by-case basis, award partial or total relief of the debtor's outstanding debts as they mature. After the debt is granted forgiveness, the creditor may no longer seek from the debtor for the debts that have been forgiven.
- The effectiveness and existence of the personal bankruptcy system
Although the mainland's personal bankruptcy system is still in the pilot stage, it has already achieved some positive results and feedback. For example:
- It is conducive to protecting and restoring the legitimate rights and interests and social status of debtors, avoiding them from falling into endless debt collection and litigation, and encouraging them to start a new life and work.
- It is conducive to standardizing and optimizing the benefit distribution and coordination mechanism between creditors, avoiding them from falling into ineffective collection and enforcement, and reducing their losses and risks.
- It is conducive to promoting the development of the market economic system and the construction of the socialist legal system, maintaining social fairness, justice and stable order, and stimulating the vitality of social innovation and consumer demand.
However, there are also some problems and challenges in the mainland's personal bankruptcy system. For example:
- The lack of a sound legislative and judicial foundation has led to the stricter scope and conditions of application of the personal bankruptcy system, which is difficult to meet the diversified needs and realities of society.
- The lack of effective credit supervision and punishment mechanisms results in the personal bankruptcy system being abused or used by some natural persons who maliciously evade debts or other dishonest conduct, harming the lawful rights and interests of other creditors and social credit order. The lack of sufficient social publicity and education has led to low awareness and acceptance of the personal bankruptcy system, and it is difficult to form social consensus and support. The lack of effective coordination and cooperation mechanisms has led to various difficulties and obstacles in the implementation of the personal bankruptcy system, and it is difficult to ensure the fairness and efficiency of the procedures.
Therefore, the mainland's personal bankruptcy system needs to be further improved and improved to meet the needs and realities of social development. Specifically, we can explore and try from the following aspects:
- Accelerate the legislative process, formulate a unified and perfect personal bankruptcy law, clarify the basic principles, scope of application, conditions, procedures and rules of the personal bankruptcy system, and provide a legal basis and guarantee for the personal bankruptcy system.
- Strengthen credit regulation, establish and complete personal credit information systems, record and publicize personal bankruptcy, punish and restrict natural persons who maliciously evade or cancel debts or other dishonest conduct, and preserve credit order and market rules.
- Increase social publicity, increase the public's understanding and recognition of the personal bankruptcy system, eliminate misunderstandings and prejudices, establish a correct view of debt and credit, and cultivate good consumption habits and financial management capabilities.
- Strengthen judicial practice, train and select professional bankruptcy administrators and judges, standardize and optimize the trial process and methods of personal bankruptcy cases, and protect the legitimate rights and interests of debtors and creditors and opportunities for participation.
In short, the personal bankruptcy system is an institutional innovation conducive to the development of the market economy system and the socialist legal system. It can both provide a way for the debtor to survive and a slap in the face to the creditor. Only when legislation, supervision, publicity, practice and other aspects are prepared and cooperated can the personal bankruptcy system play its due role and value.