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recently, a bankruptcy case has attracted attention from all walks of life.

"this court believes that the debtors guo and li meet the conditions for bankruptcy... in accordance with the relevant provisions of the "regulations on personal bankruptcy of shenzhen special economic zone" (hereinafter referred to as the "personal bankruptcy regulations"), the following ruling is made: declare the debtors guo and li bankrupt." at the end of august 2024, a judge of the shenzhen intermediate people's court (hereinafter referred to as the "shenzhen intermediate court") served a civil ruling declaring bankruptcy to the couple. this is the first case in which the shenzhen intermediate court has ruled to declare a husband and wife debtor bankrupt since the implementation of the regulations three and a half years ago.

the debtors with a debt of 9.28 million yuan will then start a three-year statutory exemption probation period, during which their income, except for the living expenses allowed to be retained, must be used to repay the debt. after the three-year probation period, they can apply to the court to exempt the remaining unpaid debts, and the court will make a final ruling in accordance with the law.

debt of 9.28 million yuan to apply for personal bankruptcy

guo and his wife are both in their 60s. in 1998, the couple opened a towel wholesale and retail store in luohu district, shenzhen, and the business was very prosperous that year. the following year, after saving a certain amount of money, they bought a property with a construction area of ​​more than 110 square meters in luohu district for 780,000 yuan (down payment of 280,000 yuan and mortgage loan of 500,000 yuan).

in 2009, the towel shop they operated caught fire, and about 1.5 million yuan worth of inventory was burned. after the economic blow, they filed arbitration and lawsuits with the shop lessor and the property company for compensation for the loss of goods, but ultimately lost the case due to factors such as the unknown cause of the fire and insufficient basis for requiring the property company to bear responsibility.

three years later, they reopened the shop. the monthly rent of the new shop was 12,500 yuan, the water and electricity management fee was about 1,000 yuan, and the renovation cost was about 80,000 yuan. however, after investing so much money, the shop has been in a loss due to poor management. they kept borrowing money from relatives, friends, banks, and various platforms, on the one hand to pay for rent, water and electricity, to maintain the shop operation, and on the other hand for daily life. as the income was not enough to cover the expenses, and the interest gradually accumulated, the debt continued to increase.

later, they began to borrow money from multiple banks and loan companies. in 2022, in order to reduce interest rates and pay off debts, they mortgaged the above-mentioned property to a commercial bank and borrowed 6.8 million yuan from the bank. despite their continuous efforts, their business did not improve and they had to close the store. in october 2023, the store was deregistered.

in 2024, mr. and mrs. guo, who were deeply in debt, thought of applying for personal bankruptcy to the shenzhen intermediate people's court.

cao qixuan, the judge in charge of the case, told china news weekly: "the court carefully reviewed their bankruptcy liquidation application and the relevant supporting documents they submitted, and commissioned a special mediation organization to verify their statements, declared property status, debt status, living conditions, etc. based on the supporting documents they submitted and the verification results, the couple's statements are credible, and their bankruptcy liquidation application meets the acceptance conditions stipulated in the individual bankruptcy regulations."

cao qixuan, the judge who presided over the case of guo and his wife, stressed that it is very important to verify the debtor's bankruptcy-related information before accepting a personal bankruptcy case. photo by our reporter zhou qunfeng

what impressed cao qixuan was that before applying for bankruptcy, guo and his wife took the initiative to put their only property (the above-mentioned property) up for sale in 2023 in order to repay their debts, but the listing price was lowered several times but still failed to sell. "who would sell their only property if they were not at the end of their rope? this shows that they are in a difficult situation and they really want to repay their debts," said cao qixuan.

on may 31, the shenzhen intermediate court formally decided to accept the personal bankruptcy liquidation case of guo and li. a week later, the court designated beijing weiheng (shenzhen) law firm as the bankruptcy administrator (referring to the intermediary agency designated by the court to handle bankruptcy affairs in accordance with the law) for the case, and huang yongyi, a lawyer from the firm, as the person in charge.

in accordance with the individual bankruptcy regulations and other relevant regulations and the requirements of the shenzhen intermediate people's court, after accepting the designation, the administrator shall, in accordance with the law, carry out tasks such as notifying creditors to declare their claims, reviewing claims, investigating the debtor's reasons for bankruptcy and property, and investigating living conditions.

on the morning of june 21, huang yongyi and chen shujuan, a member of the management team, visited guo's home. "we need to conduct a detailed investigation to see if they have really reached the point of bankruptcy liquidation."

after arriving at guo's house, huang yongyi carefully looked through each room and found that their furniture and appliances were very simple and old. guo moumou said that they even had to wait until the evening when the vegetable market was about to close to buy vegetables because the prices were cheaper at that time.

"when we arrived at his house, they had just finished breakfast and the table was not cleared yet. their breakfast only consisted of white porridge and pickles, and they looked very frugal," huang yongyi told china newsweek.

the bankruptcy administrator found that guo had undergone a heart stent surgery and was currently unemployed, and li had retired with a monthly pension of only more than 4,000 yuan. in addition to the property, the two had no other major assets, with a total of 397.95 yuan in cash and deposits.

guo's mother, who is over 80 years old, lives with the couple. the couple has two sons, the eldest son has a fourth-level intellectual disability, and the second son is still in college. the total debt of guo and his wife is about 9.28 million yuan. their only property is only worth 6.8 million yuan according to the appraisal, which means that they cannot fully repay the debt even if they sell the property. due to their age, physical condition, and the need to support and depend on their families, the two debtors currently find it difficult to earn income through labor except for pension income, and have no other expected income.

after investigation, the bankruptcy administrator believed that the bankruptcy facts stated by mr. and mrs. guo and the information they declared were true, and there was no transfer of property, debt evasion, false statement, etc., which met article 2 of the individual bankruptcy regulations: "loss of ability to repay debts due to production and operation, living consumption or insufficient assets to repay all debts."

the judge of shenzhen intermediate court served the civil ruling to mr. and mrs. guo. photo/provided by the news department of shenzhen intermediate court

unpaid debts may be forgiven after 3 years

this case involves about 20 creditors, most of whom are banks or financial institutions such as small loan platforms and financial services companies under banks, and a few are natural person creditors.

on august 5, the creditors' meeting was held. the administrator submitted the bankruptcy liquidation investigation report of mr. and mrs. guo to the creditors' meeting, including property report, creditor's rights list, undeclared creditor's rights verification list, exempted property list, etc., and the creditors' meeting put forward its review opinions.

the couple promised that they would vacate the property within 30 days after the court declared them bankrupt and submit the house keys to the administrator. after that, the administrator would sell the property through online auction in accordance with the law, and the proceeds would be used to repay the debt according to the distribution plan. after vacating the house, they rented a house to live in.

huang yongyi said that at the meeting, most creditors understood and supported the administrator's opinion that the two debtors met the conditions for bankruptcy liquidation after investigation. of course, some individual creditors had different opinions and believed that their own interests were damaged and were unwilling to support. in the end, the investigation opinions on the bankruptcy liquidation of mr. and mrs. guo, the verification of claims, the property investigation report, the list of exempted properties and other matters were supported by the majority of creditors, and the creditors who disagreed with the bankruptcy liquidation of the debtors did not raise any basis or reasons for their opposition.

li shuguang, director of the bankruptcy law and enterprise restructuring research center of china university of political science and law, told china news weekly that in individual bankruptcy cases, if the debtor shows all the true information that meets the legal conditions to the creditor, and the creditor has no sufficient basis to object, but simply disagrees with the debtor clearing the debt through bankruptcy procedures, the law will also make a negative evaluation of the creditor. in this case, the court has the right to enforce the ruling according to law.

cao qixuan also stated that according to the personal bankruptcy regulations, in the personal bankruptcy liquidation procedure, the debtor's property report, the exempted property list and the creditors' claims declaration shall be reviewed or approved by the creditors' meeting. after the court makes a ruling and confirms it in accordance with the law, if it is considered that the debtor meets the conditions for bankruptcy, the debtor shall be declared bankrupt upon application by the debtor or the administrator.

he also pointed out that if the debtor is not declared bankrupt, the creditor will pursue the debt through litigation and enforcement procedures, and the only house under the debtor's name is the only property available for enforcement. however, this property cannot cover all the debts borne by the debtor, and after entering the enforcement procedure, the execution has to be terminated in the end. "the debtor has elderly people and mentally disabled children at home, which makes it difficult to enforce. by clearing the debt through the personal bankruptcy liquidation procedure, the debtor promises to actively cooperate in handing over the property for debt repayment, which undoubtedly saves litigation and enforcement costs."

an employee of a commercial bank in shenzhen told china news weekly that the biggest problem facing banks now is that financial institutions have compliance requirements for conducting business, and the head office has an internal control assessment management system. constrained by the existing management system, local financial institutions lack policies and processing authority to support the clearing of personal debts, making it difficult to extend, reduce or exempt personal debts in a flexible manner.

the staff member said that in similar cases, even if the bank sues to recover the debt and the lawsuit is successful, it may encounter problems with enforcement later. the debt will become a receivable that cannot be recovered for a long time. "in this sense, the personal bankruptcy system is equivalent to providing an efficient and predictable exit mechanism for such debts."

on august 22, the administrator applied to the shenzhen intermediate court to declare guo and his wife personally bankrupt. on august 29, the shenzhen intermediate court judge served the ruling to guo and his wife.

declaring a debtor bankrupt does not mean that the debtor will be exempted from the remaining outstanding debts in the future. according to the regulations on personal bankruptcy, the shenzhen intermediate court will decide whether to exempt the couple's outstanding debts based on their performance during the probation period, whether they comply with the court's decision to restrict their consumption behavior, and other obligations. if the court, the bankruptcy administration office, and the administrator receive complaints from the outside that the debtor may have committed bankruptcy fraud or other illegal acts, they will investigate and handle them in accordance with the law.

huang yongyi said that after the probation period, the couple is expected to no longer have to repay the outstanding debt. "but they both took the initiative to tell me that although the court may rule to exempt their outstanding debts, if the economy improves, no matter how long it has been, they will try their best to repay them."

"some creditors are my relatives and friends. they lent me money based on family or friendship reasons. now i feel guilty facing them. i will try my best to repay all debts to creditors in the future," said guo.

according to personal regulations, during the probation period, the debtor can retain a sum of money from his income every month to be used for his and his dependents' living expenses, support, medical expenses, etc.

huang yongyi said that in the case of guo and his wife's personal bankruptcy and liquidation, guo and his wife calculated their living expenses based on the current shenzhen minimum wage standard (2,360 yuan) per month, plus the expenses required by guo's mother and eldest son, and finally calculated that the monthly living expenses retained by guo and his wife was 7,800 yuan. considering that guo's second son is about to graduate from college, the above expenses do not include his monthly expenses.

guo said that his youngest son is a senior in college and can complete his studies through work-study programs, student loans, etc., and can support himself by finding a job after graduation.

according to the personal bankruptcy regulations, during the probation period, the debtor must accept inspection and supervision by the administrator and the bankruptcy administration office, and report personal income, expenditure, property status and other information every month. if there is any income that exceeds the above expense amount or any new bankruptcy property, it must be taken over by the administrator and distributed to creditors in proportion.

huang yongyi gave an example, saying that if mr. and mrs. guo earned 10,000 yuan in a certain month during the probation period, it means that the excess 2,200 yuan needs to be handed over to the administrator for management and distributed to creditors in accordance with the law. "of course, some real situations are difficult to predict. if they have a sudden illness and need a large amount of money, the relevant expenses can be adjusted according to the actual situation."

it is understood that if due to objective circumstances the expenses that the debtor needs to retain exceed the amount listed in the list of exempted property, the debtor shall make a written request stating the amount to be increased and the reasons. after investigation, the administrator shall report to the shenzhen intermediate people's court for approval. the administrator shall inform the creditors of the adjusted amount of the debtor's living expenses.

huang yongyi said that the significance of the guo couple's case is that while more people will understand shenzhen's individual bankruptcy system, it will also encourage more people to start their own businesses. "although starting a business may not necessarily succeed, this system gives them a way out after failure."

“explore the establishment of a personal bankruptcy system”

on july 18, the third plenary session of the 20th cpc central committee reviewed and approved the "decision of the cpc central committee on further comprehensively deepening reforms and promoting china's modernization", which deployed the reform measure of "exploring the establishment of a personal bankruptcy system". recently, the beijing municipal committee issued the implementation opinions on the implementation of the "decision of the cpc central committee on further comprehensively deepening reforms and promoting china's modernization". the implementation opinions proposed to cooperate in exploring the establishment of a personal bankruptcy system.

as the only pilot area for individual system reform in my country, shenzhen has been carrying out this pilot project for more than three years.

on august 26, 2020, shenzhen took the lead in issuing the "regulations on individual bankruptcy in the shenzhen special economic zone", which came into effect on march 1, 2021. data provided by the shenzhen bankruptcy court to china newsweek showed that as of the end of august this year, the shenzhen intermediate court had accepted more than 350 individual bankruptcy cases.

shenzhen intermediate court adheres to the principle of "reorganization first" in personal bankruptcy cases. photo by our reporter zhou qunfeng

over the past three years, with the implementation of the regulations and more and more cases being reported, this system has become increasingly well-known, and the application materials provided by debtors have become increasingly standardized and comprehensive.

according to the individual bankruptcy regulations, there are three basic procedures for individual bankruptcy, namely bankruptcy liquidation, reorganization and reconciliation. among the hundreds of individual bankruptcy cases accepted by the shenzhen intermediate court, most are bankruptcy reorganization procedures.

wang xinxin, director of the bankruptcy law research center of renmin university of china, said that debtors applying for reorganization procedures must have stable and predictable income to repay debts. after negotiation, creditors and debtors can make an agreement on debt reduction and exemption in the reorganization plan. debtors must repay creditors in a timely manner in accordance with the reorganization plan, and the implementation period of the reorganization plan generally does not exceed 5 years. the reconciliation procedure is a reconciliation agreement reached on the basis of unanimous consent of creditors and debtors, and it respects the voluntary choice of the parties.

bankruptcy reorganization is a win-win situation for debtors and creditors, because in the reorganization process, debtors can get a breathing space to pay off their debts and reduce their debts appropriately, while creditors may get a higher compensation rate than in the bankruptcy liquidation process.

taking the "first personal bankruptcy case in china" as an example, the debtor liang moumou owed 760,000 yuan and applied for personal bankruptcy reorganization. the draft reorganization plan showed that he would repay the entire principal in installments within 3 years, waiving interest and late payment fees, and the creditors' repayment rate would be about 89%. if liang moumou chose the bankruptcy liquidation procedure, the creditors' repayment rate would be about 31%. in the end, at the creditors' meeting, 8 of the 9 creditors attending the meeting voted in favor of the draft reorganization plan.

in contrast, wang xinxin said that bankruptcy liquidation is a traditional bankruptcy procedure. if the debtor does not meet the reorganization conditions and cannot reach a settlement, he can only enter the liquidation procedure. the debtor can retain the basic property needed for life according to law, and the rest of the property needs to be liquidated to repay the creditors in order to achieve fair repayment to the creditors. after the bankruptcy liquidation procedure is terminated, the debtor who meets the statutory conditions can request the court to exempt the remaining debts that have not been repaid.

the threshold for personal bankruptcy liquidation procedures is higher and stricter. whether to initiate personal bankruptcy liquidation procedures, the court will comprehensively consider factors such as the debtor's age, family, occupation, work ability, education level, living conditions, and expected rights and interests. cao qixuan said that if the debtor still has a certain ability to repay the debt, efforts should be made to resolve the debt problem through bankruptcy reorganization.

huang xin, a judge at the shenzhen bankruptcy court, cited an example of a young man in his 20s who owed 500,000 or 600,000 yuan and applied for personal bankruptcy liquidation. his parents had a house in shenzhen and the car he used was also registered in his parents' name. the court did not accept his bankruptcy application based on his age, living conditions and other factors.

among all the discussions about personal bankruptcy, the most concerned issue is whether someone will use the personal bankruptcy system to escape debt? cao qixuan told china news weekly that before accepting a personal bankruptcy case, it is very important to verify the debtor's bankruptcy-related information. in addition to the reasons for bankruptcy, the process of debt formation, and repayment ability, the focus of the verification is to verify whether the debtor has concealed, transferred, or destroyed property, improperly disposed of property rights or improperly reduced the value of property.

the "shenzhen bankruptcy court's working guidelines on the trial of personal bankruptcy and liquidation cases" issued on may 16 this year clearly stated that if the debtor transfers property, evades debts, makes false statements, provides false evidence, and other acts that hinder the bankruptcy procedures during personal and corporate bankruptcy procedures, the court will not accept his application; if the bankruptcy liquidation application is in the filing review stage, the court will rule to reject it; if the bankruptcy liquidation application has been accepted, the court will rule to terminate the bankruptcy liquidation procedures.

"if a debtor obtains debt relief or exemption through bankruptcy fraud, he will be held accountable for life. even if the court makes a ruling to exempt the debtor from the remaining unpaid debts, the creditor has the right to apply for cancellation, and the debtor must bear the corresponding legal consequences. the debtor will then 'lose both the wife and the army'," said cao qixuan.

every time the shenzhen intermediate people's court announces a case that has been solved individually, cao qixuan will browse the comments of netizens. "judging from the positive comments of netizens, shenzhen's exploration of individual cases is meaningful."

wang xinxin also believes that the issue of personal bankruptcy involves all aspects of society. by conducting relevant pilot projects in shenzhen and other places, it can provide public opinion basis, theoretical exploration and practical experience for establishing a personal bankruptcy system nationwide, which is very beneficial and necessary.