Shenzhen drafts China's first personal bankruptcy laws as virus pressures economy

SHENZHEN, China (Reuters) - Shenzhen has drafted China's first personal bankruptcy laws as the southern city tackles broader economic troubles stemming from the coronavirus outbreak, paving the way for others to follow suit.

The rules are intended to give "honest and unfortunate" debtors the chance to escape the mire of debt and make a comeback, the city government said in an official post on Wednesday.

Despite corporate bankruptcy laws nationwide since 2007, individuals are still held personally liable for business debts, making their recovery particularly difficult, according to draft rules posted on a Shenzhen government website on Tuesday.

The draft rules, open for public comment until June 18, allow Shenzhen residents who cannot pay their debts to apply for personal bankruptcy if they have paid social insurance in the city for at least three years.

Once approved, applicants will spend at least three years in a supervised "probation" period before all or part of their debts are wiped clean. During this time their expenditure will be supervised, the draft rules said.

A Reuters analysis showed 76 entities filed for bankruptcy with the Shenzhen Intermediate People's Court in May, up 85% from a year earlier.

Individual businesses made up more than a third of Shenzhen's 3.3 million registered commercial entities, with many involved in e-commerce or freelance work, official figures show.

"After the epidemic, it's unclear just how many business owners will be forced on to the country's defaulter list if they fail," said Yin Yanrong, a partner in the Guangdong Baocheng law firm.

Creditors owed more than 500,000 yuan ($70,228.66) will also be able to apply to the court for bankruptcy liquidation of the debtor.

Several lawyers told Reuters they expect other regions to roll out similar trials. The move also aims to rid the economy of risks such as credit-fuelled personal consumption and bubbles like that in Shenzhen's red-hot real-estate market.

"Shenzhen, as a leading pilot area, usually gives priority to new policies," said Chen Xiaorui, a lawyer with the Guangdong Nuoming law firm.

(Reporting by David Kirton in Shenzhen and Yawen Chen in Beijing; Editing by Clarence Fernandez)

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