(SINGAPORE 2025.9.4) Come November 1, China’s Xiamen city in Fujian province will implement its personal bankruptcy law, which has been passed by the local legislature on August 26. According to the Chinese media, it is the second such law in the country, following the one introduced in Shenzhen in 2021.
Hailed as a law to give “honest but unfortunate” debtors a chance to make financial and social comeback while fostering a business environment that encourages innovation and forgives failure, this ordinance is expected to contribute to the development of a national personal bankruptcy legislation to be applied across China, the China Central Television (CCTV), China’s national broadcaster, said in its website.
The Xiamen law was drafted over a space of 18 months by a dedicated task force and an expert panel headed by senior bankruptcy scholars and former officials of China’s Supreme Court.
Building on international practices and Shenzhen’s pilot programme, this law comprises 16 chapters and 189 articles, making it the most comprehensive legislation Xiamen has produced since gaining full special economic zone status with unique legislative powers in 1994.
Similar to Shenzhen’s law, its key innovations include a ‘protection’-oriented approach that balances the rights of creditors, debtors, and society. This approach safeguards debtors instead of just penalizing them, while ensuring that society remains secure and stable not hurt by bankruptcy cases.
The law also includes legal procedures encompassing pre-bankruptcy counseling, debt workout programs, cases involving both personal and business debts, and other special circumstances. These make the law more flexible and accommodating.
The law devotes a chapter to credit repair, which is aimed at helping individuals in personal bankruptcy restore their financial reputation and creditworthiness. At the same time, it imposes strict safeguards to prevent any fraudulent attempts to evade debt repayment.
Finally, institutional support mechanisms—such as a bankruptcy affairs office, aid funds, and professional administrator systems must be in place.
Officials stated that the aim of the law is to promote entrepreneurship and risk-taking, while preventing debtors from evading their responsibilities through dishonest means.
Like Shenzhen’s law, filing for personal bankruptcy is restricted to local residents who can demonstrate they are unable to repay their debts.
Without a personal bankruptcy law, indebted individuals in other parts of China remain highly vulnerable financially, with limited protections from authorities.
They risk permanently losing homes and other assets, with no formal mechanism for negotiating debt relief.
Banks may also deny loans to individuals with a history of debt issues, making it difficult to buy a car, secure rental housing, or start a small business.
If a small business fails, the owner’s personal assets can be seized to settle business debts, thus discouraging risk-taking and innovation.
China is exploring enacting a nationwide personal bankruptcy law, which builds on lessons from pilot programmes, to tackle growing household debt, close gaps in the existing enterprise bankruptcy framework, ease social pressures, and promote entrepreneurship.
CCTV remarked that such a law would foster a fairer and more supportive economic environment for people struggling with financial challenges.
By February 2022, more than 1,000 personal bankruptcy applications had been submitted in Shenzhen, reflecting an increasing acceptance of the system.
The rollout of personal bankruptcy laws across China is expected to encounter some cultural and economic hurdles. In a society shaped by strong collectivist values, bankruptcy is often seen not just as an individual failure but also as a stain on the family.
This problem is made worse because China has no strong personal credit system and few social programmes to help people in debt, making the law harder to enforce as a relief to debtors.
