Unprecedented! Personal bankruptcy regulations, first implemented in Shenzhen

# Compiled from: Guangdong Judicial Administration, People's Shenzhen, Miaoyan Legal Circle
 
On March 1, 2021, China's first personal bankruptcy regulation, the "Shenzhen Special Economic Zone Personal Bankruptcy Regulations," came into effect. On the same day, the country's first personal bankruptcy affairs management institution—the Shenzhen Bankruptcy Affairs Management Office—was officially established, with the inauguration ceremony held at the Shenzhen Municipal Bureau of Justice.

 

 
What is the "Shenzhen Special Economic Zone Personal Bankruptcy Regulations"?
The personal bankruptcy system refers to the process where, when a natural person is unable to repay due debts, their unpaid debts may be discharged in accordance with these regulations after bankruptcy liquidation, reorganization, or settlement.
 
Currently, some countries and regions with mature market economies have established personal bankruptcy systems. The World Bank also includes "resolving insolvency" as a primary indicator in its business environment evaluation system. Shenzhen took the lead by formulating and issuing the "Shenzhen Special Economic Zone Personal Bankruptcy Regulations" in 2020.
 
These regulations pioneer the filling of a gap in the rescue system for market entities, improve the orderly exit mechanism for market participants at the individual level, and establish a bankruptcy handling system integrating "court adjudication, institutional management, administrator execution, and public supervision."
 
 
What is the Shenzhen Bankruptcy Affairs Management Office?
The establishment of the Shenzhen Bankruptcy Affairs Administration is an innovative measure under the Shenzhen Special Economic Zone Personal Bankruptcy Regulations, and also a prerequisite and guarantee for the implementation of the regulations.
 
According to the Shenzhen Special Economic Zone Personal Bankruptcy Regulations, the functions of personal bankruptcy affairs management are exercised by a working department or institution designated by the Shenzhen Municipal People's Government. It is an independent legal entity under the Shenzhen Municipal Bureau of Justice, responsible for the management of bankruptcy affairs in Shenzhen.
 
Its functions mainly include three aspects:
 
First, implementing the bankruptcy information registration and information disclosure system.The Shenzhen Special Economic Zone Personal Bankruptcy Regulations stipulate that the Bankruptcy Administration shall establish a personal bankruptcy information system, register and disclose important information in the handling of personal bankruptcy cases, allowing debtors to be subject to supervision by the public and interested parties, ensuring that honest but unfortunate debtors can achieve economic rebirth, while debtors who maliciously evade debts face legal sanctions, forming a credit-centered social behavior incentive and restraint mechanism, and promoting the improvement of the social credit system.
 
Second, managing and supervising the performance of duties by personal bankruptcy administrators in accordance with the law.Establish according to law the management system for the appointment, performance of duties, and remuneration of administrators, supervise administrators in fulfilling their duties, and promote the efficient handling of personal bankruptcy cases in accordance with the law.
 
Third, provide relevant public services.Provide bankruptcy affairs consultation and assistance services, assist in investigating bankruptcy fraud, and jointly promote the implementation of the "Shenzhen Special Economic Zone Personal Bankruptcy Regulations."
 
 
[1] The author's perspective
The personal bankruptcy system is a legal system whereby, when a natural person is unable to repay due debts, the natural person may be declared bankrupt through legal procedures, and upon completion of the bankruptcy process, the unpaid debts are discharged. Although other regions have previously explored "personal bankruptcy" through methods such as "centralized settlement of personal debts," currently only Shenzhen has elevated "personal bankruptcy" to the level of a legal system.

 

 
China's Enterprise Bankruptcy Law came into effect in 2007, but there has long been a lack of specific legal norms for handling personal bankruptcy issues, hence it is also called "half a bankruptcy law." In modern society, whether individuals engage in production, business, or daily consumption, creditor-debtor relationships may arise. If such relationships remain unresolved for a long time, they will inevitably disrupt normal social and economic order. Enterprises burdened with debt can be reborn through bankruptcy reorganization, but individuals face lifelong debt collection. The original intent of the personal bankruptcy system is to help "honest but unfortunate debtors" free themselves from debt crises, re-engage in social activities, create more wealth, and continuously repay debts to realize creditors' claims.
 
Therefore, relief is the most essential meaning of the personal bankruptcy system. The personal bankruptcy system provides subsequent protection for individuals as market entities facing debt crises. This is a proper relief and exit mechanism in a mature market economy environment, and its ultimate significance is to fill an important gap in perfecting the socialist market economy legal system and further optimizing the business environment.