Is There Personal Bankruptcy In China?

For a long time, China’s bankruptcy legal system primarily focused on enterprises and lacked provisions for personal bankruptcy. However, a significant milestone was achieved on March 1, 2021, with the enactment of the “Shenzhen Special Economic Zone Personal Bankruptcy Regulations.” This marked the first local legislation on personal bankruptcy in China, signifying a crucial step forward.

Now, let’s delve into the conditions for filing personal bankruptcy in Shenzhen. These conditions can be categorized into “positive conditions” and “negative conditions.” On the positive side, the applicant must be a Shenzhen resident who has continuously paid social insurance for three years, known as the “geographical condition.” It is worth noting that Shenzhen’s personal bankruptcy application has a relatively strict geographical restriction, setting it apart as a pioneering local legislation. Additionally, the applicant must have lost the ability to repay debts or lack sufficient assets to fulfill their financial obligations due to business operations or daily living expenses.

On the negative side, there are certain conditions that must be avoided. The applicant must not have any improper intentions, such as engaging in asset transfers, maliciously evading debts, or damaging the reputation of others. Furthermore, obstructive behavior during bankruptcy proceedings, such as providing false statements or evidence, is strictly prohibited. Lastly, the discharge of unpaid debts should not exceed eight years, allowing for the possibility of more than two complete bankruptcy procedures for the same individual.

Now, let’s explore the process of filing for personal bankruptcy in Shenzhen. First and foremost, the debtor must retain a lawyer to handle the personal bankruptcy proceedings. During the initial bankruptcy application assessment, the debtor must provide essential documents to the assigned lawyer, including proof of residence, social insurance records, tax records, a personal statement detailing the reasons for bankruptcy, information about family, personal property, debts, and income details.

Once the assessment confirms that the debtor meets the requirements for bankruptcy application, the materials are organized and submitted to the court. Within five days of receiving the bankruptcy application, the court notifies known creditors, the debtor, and the bankruptcy administration department, and publicly announces the bankruptcy application. Subsequently, within 30 days, the court issues a ruling on whether to accept the application, although in exceptional cases, this period can be extended by 15 days with the approval of the court president.

The court reviews the bankruptcy application through written investigations, and in more complex cases, a hearing may be conducted. During this process, the court appoints an administrator to conduct a thorough investigation into the debtor’s financial situation and transactions preceding the bankruptcy procedure. It is important to emphasize that cooperation from spouses, children, relatives, property administrators, and other stakeholders is essential in conducting asset investigation, takeover, and distribution.

If the debtor meets the statutory requirements, the court issues a bankruptcy ruling. In the case of liquidation, the debtor enters a three-year discharge examination period from the date of the declaration. However, it is crucial to note that if the debtor violates the regulations, the court may decide to extend the examination period by two years. During this examination period, the debtor must diligently register and declare personal income, expenses, and property status on a monthly basis in the bankruptcy information system of the bankruptcy administration department.

To conclude, there is only individual bankruptcy in Shenzhen at the moment, so if you are unable to pay outstanding debts, the consequence would be being sued and ending up on the national debtor blacklist. Being on the list can result in limited access to financial services, employment challenges, travel restrictions including not being able to buy a plane and train ticket, and not being able to check into a hotel. You might even encounter difficulty leaving China.