Academic journal article Texas International Law Journal

Japan's Personal Insolvency Law

Academic journal article Texas International Law Journal

Japan's Personal Insolvency Law

Article excerpt

The project involving the comprehensive reform of Japanese insolvency law started in October 1996, and was finished in November 2004. There are now two types of judicial proceedings for personal insolvencies under Japanese insolvency law. The first is straight bankruptcy proceedings based on the Bankruptcy Law, in which the debtor can be discharged; the other is special civil rehabilitation proceedings for individual debtors. In Part I of this Article, I offer a brief discussion of personal insolvency law, as well as bankruptcy proceedings and special civil rehabilitation proceedings, both for individual debtors. In Part II, I present an overview of the legislative discussion concerning the treatment of debtors, who might be able to repay more from future income than that which would be distributed in bankruptcy proceedings.

I. OVERVIEW OF JAPAN'S PERSONAL INSOLVENCY LAW: BANKRUPTCY PROCEEDINGS AND SPECIAL REHABILITATION PROCEEDINGS FOR INDIVIDUAL DEBTORS

A. Overview of Japan's Personal Insolvency Law

I start by providing a general description of the Bankruptcy Law and the Civil Rehabilitation Law before focusing on personal insolvency.

The Bankruptcy Law (Hasan Ho)1 was comprehensively amended in 2004, and became effective on January 1, 2005. The Bankruptcy Law provides for bankruptcy proceedings, which are applicable to both individuals and legal entities.2 A bankruptcy proceeding is a sell-out proceeding where a debtor gives up all assets (except for those exempt in the case of an individual debtor), the court-appointed trustee sells these assets, and the proceeds are distributed to creditors on a pro-rata basis.3 In 2005, there were 227,053 bankruptcy cases terminated; 216,582 of those cases involved bankruptcy proceedings of individual debtors.

The Civil Rehabilitation Law (Minji Saisei Ho)* was enacted in 1999, and became effective on April 1, 2000. This law provides for civil rehabilitation proceedings, which are also applicable to both individuals and legal entities.5 A rehabilitation proceeding is a pay-out proceeding where a debtor can propose to keep all assets in exchange for promising to pay off debts from future income over a period of time according to a rehabilitation plan.6 A rehabilitation plan becomes effective upon its acceptance by a majority of unsecured creditors and court approval.7 In 2005, there were 27,478 rehabilitation cases terminated; 26,644 of those cases comprised special rehabilitation proceedings for individual debtors.

B. Bankruptcy Proceedings of Individual Debtors

There are several rules applicable to individual debtors, such as exemption and discharge. The law provides that exemptions shall include the debtor's household furnishings, household goods, apparel, household appliances, cash of up to ¥990,000," and the debtor's right to receive unpaid salary of up to ¥330,000" per month. In addition, the court may, when petitioned by the debtor or at its own discretion, extend the scope of exemption in consideration of certain factors, including the following: the total amount of other exempted properties, whether the debtor is employed, and the number and age of family members. Typical examples of exemption extensions are bank account deposits up to a particular amount, and ownership of a motor vehicle in cases in which the debtor lives in an area (where the public transportation system is not well-established or where the debtor runs a carrier business). There is no homestead exemption in Japan, so the debtor has to give up real estate.

A filing for a bankruptcy proceeding by the debtor is deemed to be a filing for discharge. The court grants a debtor a discharge-except in certain instances. Grounds for denial of discharge include the debtor's wrongdoing in or in connection with bankruptcy cases-such as concealment of assets to defraud creditors or making false statements feigning solvency when borrowing money-and refusal of the debtor to testify or cooperate with the trustee or court. …

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