A Glimpse At Bankruptcy In China

The State of Bankruptcy In China

Many American debtors don’t realize how unique our bankruptcy system is and how many foreign nations lack even a basic bankruptcy system.  China for example has NO individual bankruptcy system.  That means that individuals cannot discharge their debts in Chapter 7 bankruptcy or Chapter 13 bankruptcy type systems. A matter of fact, China has just now created a comprehensive bankruptcy system which will allow all types of enterprises (except partnerships and sole-proprietorships) the ability to liquidate or restructure their debts in bankruptcy.

The Chinese bankruptcy system was put into place in 2007 and most recently tweaked to make sure that a corporate debtor’s international assets could be included in the bankruptcy and that foreign investment vehicles could also file for bankruptcy. Government run agencies and private companies will now be governed by the same bankruptcy laws in China. Also, private corporations will have the option of having a bankruptcy administrator run their company as opposed to the management which was in place before a bankruptcy filing.   But the most important change to China’s bankruptcy laws is that corporate debtors will have the opportunity to save their company in bankruptcy whereas before a bankrupt business would simply be liquidated.

This is good news for businesses in China who may need bankruptcy; but the fact that individual debtors have been left out of the new bankruptcy system is quite telling.  Why is it that individual debtors in China have not been given the same opportunity to repay or discharge their debts in bankruptcy?  Probably because like here in the U.S. creditor interests want to have the ability to entrap ordinary citizens with debt they can’t pay and give them no way out of the bad situation. Imagine what a mess we would be in right now if we did not have personal bankruptcy.