Investigating Debts in Japan: What is the Process for Lawyers to Ascertain the Full Extent of a Debtor's Liabilities?

Japanese Attorney at Law - Bengoshi L.L.

02 Jun 2025 • 7 min read

When an individual or business in Japan seeks legal assistance for debt restructuring, one of the most fundamental and critical initial tasks for their lawyer is to conduct a thorough investigation to ascertain the full extent of the debtor's liabilities. An incomplete or inaccurate understanding of the debt landscape can lead to ineffective restructuring strategies, unforeseen complications, and, in some formal proceedings like bankruptcy, severe adverse consequences for the debtor. This article outlines the meticulous process Japanese lawyers typically undertake to build a comprehensive picture of a debtor's financial obligations.

The Starting Point: The Debtor Interview and Document Review

The debt investigation process invariably begins with in-depth interviews with the debtor and a careful review of all documents they can provide.

1. Initial Client Consultation (事情聴取 - Jijō Chōshu):
Lawyers employ detailed questioning techniques to elicit as much information as possible from the debtor regarding their debts. This is not always straightforward, as debtors may:

Have forgotten about older or smaller debts.
Be unaware of the exact current balances or the original creditors (due to debt sales or assignments).
Be hesitant to disclose certain types of debts due to embarrassment or fear, such as loans from family members, friends, or, more problematically, unregulated lenders or loan sharks (ヤミ金業者 - yamikin gyōsha).
Not perceive certain obligations (e.g., guarantees for others) as their own direct debts until legal implications are explained.

To structure this initial information gathering, lawyers often use standardized forms like a "Consultation Card" (相談カード - sōdan kādo) for basic details and a preliminary "Creditor List" (債権者一覧表 - saikensha ichiranhyō) to be filled out by the debtor to the best of their current knowledge. The lawyer will stress the importance of absolute honesty and completeness, explaining, for instance, that in a bankruptcy proceeding, submitting a false or incomplete creditor list can be grounds for denial of debt discharge (破産法第252条1項7号 - Bankruptcy Act Art. 252(1)(vii)).

2. Systematic Review of Debtor-Provided Documents:
Debtors are asked to bring all conceivable financial documents to the consultation. This includes:

Loan agreements and related correspondence.
Credit card statements and cardholder agreements.
Bank passbooks (預貯金通帳 - yochokin tsūchō) for all accounts, often for at least the past two years, as these can reveal regular payments to undisclosed creditors or unusual financial activities.
Demand letters, court notices, or any other communications from creditors.
Tax payment notices or records of tax arrears.
Records of any guarantees provided.

Even a seemingly disorganized collection of papers can provide vital clues to a trained legal eye, helping to piece together the debtor's financial history and identify potential creditors.

Formal Approaches to Creditors for Information

Direct information from creditors is indispensable for accurate debt verification.

1. The Notice of Engagement (Junin Tsuchi) as an Information Gathering Tool:
Upon formal engagement, the lawyer dispatches a "Notice of Engagement" (junin tsuchi - 受任通知) to all known and suspected creditors. Beyond its primary function of notifying creditors of legal representation and (for regulated lenders) halting direct collection, this notice is a key instrument for debt investigation:

Request for Full Transaction History (取引履歴の開示請求 - Torihiki Rireki Kaiji Seikyū): A core component of the junin tsuchi is a formal request for each creditor to provide a complete history of all transactions related to the debtor's account(s) from the very beginning of the relationship. This is essential for verifying the debt amount and, critically, for performing the hikinaoshi keisan (interest recalculation) to identify any overpayment claims (kabarai-kin).
- Legal Basis for Disclosure: For registered money lenders, this disclosure is an obligation under Article 19-2 of the Money Lending Business Act (貸金業法 - Kashikingyō Hō). This Act was amended following Supreme Court precedents that established a lender's duty to disclose such information.
- Addressing Incomplete Disclosure: Lawyers must be vigilant for lenders who provide only partial histories (e.g., for the last 10 years only, or only transactions after a company merger). Persistent follow-up is often required to obtain complete records. If a lender remains uncooperative, the lawyer may advise the client on further steps, which could include initiating litigation where a court order for document production (民事訴訟法第221条 - Code of Civil Procedure Art. 221) might be sought.
The Creditor Investigation Form (債権調査票 - Saiken Chōsa-hyō): Many lawyers enclose a "Creditor Investigation Form" with the junin tsuchi. This form requests creditors to confirm specific details such as:
- The current outstanding balance (broken down into principal, interest, and late charges).
- Details of any collateral or security held.
- The names and contact information of any guarantors.
- Whether any legal proceedings (lawsuits, attachments) are pending or have been concluded.
  The responses to these forms provide valuable, current data directly from the creditors.

Analyzing Financial Records for Clues

Beyond direct creditor communications, the debtor's own financial records are scrutinized.

1. Scrutinizing Bank Passbooks (預貯金通帳 - Yochokin Tsūchō):
Bank passbooks, which provide a chronological record of transactions, are a rich source of information. Lawyers typically review these for at least the past two years (a common requirement for court filings in bankruptcy):

Regular Outgoing Payments: Recurring payments to entities not listed by the debtor as creditors can indicate forgotten loans, insurance policies (which might have cash surrender values, an asset), lease payments, or other regular financial obligations.
Incoming Funds: Unusual or unexplained large deposits might require clarification regarding their source.
Payments to Individuals: Payments to individuals might indicate informal loans from family or friends, or potentially more problematic debts to unregulated lenders.
"Consolidated Entries" (おまとめ記帳 - Omatome Kichō): If a passbook hasn't been updated for a long time, multiple transactions might be summarized in a single line. In such cases, a detailed transaction statement (torihiki meisai) from the bank for that period will be necessary.

2. Reviewing Credit Card Statements:
These provide details of spending patterns, cash advances, and payments, helping to confirm debts with card issuers and sometimes revealing spending habits that might be relevant to the cause of indebtedness.

Utilizing Credit Information Bureau Reports (If Necessary and Consensual)

While the primary method involves direct creditor contact, lawyers in Japan may also, with the debtor's explicit consent, consider obtaining reports from Credit Information Bureaus (信用情報機関 - Shin'yō Jōhō Kikan) such as JICC, CIC, or KSC (JBA).

These reports can help identify institutional loans or credit card accounts that the debtor may have overlooked, especially if they have many accounts or a long credit history.
However, these reports will not list informal loans (from family/friends), debts to most non-financial entities, or loans from illicit sources like yamikin. Therefore, they are a supplementary tool, not a replacement for thorough debtor interviews and direct creditor inquiries.

The Recalculation Process (Hikinaoshi Keisan)

Once transaction histories are received from lenders, especially consumer finance companies and credit card issuers (for cashing services), the lawyer will perform the hikinaoshi keisan. This involves recalculating all interest charged according to the maximum legal rates under the Interest Rate Restriction Act.

This process is vital not only for uncovering potential kabarai-kin (overpayment claims) but also for determining the correct current principal balance of each loan. The amount claimed by a lender may not always be the legally enforceable amount.

The investigation extends to understanding the nature of each debt and any related parties:

Guaranteed Debts (保証債務 - Hoshō Saimu): If the debtor has acted as a guarantor for someone else, or if someone has guaranteed the debtor's obligations, the terms and current status of these guarantees must be ascertained. This involves contacting the creditor and potentially the principal debtor or other guarantors.
Secured Debts (担保付債権 - Tanpo-tsuki Saiken): If debts are secured by collateral (e.g., a mortgage on real estate, a lien on a vehicle), the lawyer verifies the security interest, the value of the collateral, and the outstanding secured amount. This often involves reviewing real estate registration documents or vehicle registrations.
Tax and Social Security Arrears (公租公課の滞納 - Kōso Kōka no Tainō): These are often priority claims and are generally not dischargeable in bankruptcy or significantly reducible in rehabilitation. The lawyer will contact the relevant tax authorities (national and local) and social security offices to confirm the exact amounts outstanding.
Investigating Potential "Yamikin" Debts: If there's any suspicion of involvement with loan sharks (yamikin), the investigation requires particular care. Yamikin often operate illegally and may not respond to standard legal notices. Lawyers experienced in this area use specific strategies to deal with such entities, focusing on the illegality of their lending practices (e.g., exorbitant interest rates violating the Act Regulating the Receipt of Contributions, the Receipt of Deposits, and Interest Rates).

Consolidating and Verifying the Debt Picture

After gathering information from all these sources, the lawyer's team meticulously consolidates and verifies the data:

Creating the Definitive Creditor List (Saikensha Ichiranhyō): This becomes the master document detailing all known creditors, the nature of their claims, the recalculated and verified amounts, security status, and guarantor information.
Reconciling Discrepancies: Information provided by the debtor, responses from creditors (transaction histories and investigation forms), and data from other sources (like bank statements) are cross-referenced. Any discrepancies in amounts, dates, or terms are investigated further, often requiring follow-up communication with the creditor or debtor.

The Critical Importance of a Complete and Accurate Debt Investigation

A thorough and accurate debt investigation is the bedrock upon which any successful debt restructuring strategy is built in Japan. Its importance cannot be overstated:

Choosing the Correct Restructuring Path: The total amount and nature of the debts heavily influence whether Nin'i Seiri (negotiated restructuring), Kojin Saisei (individual civil rehabilitation), Jiko Hasan (personal bankruptcy), or another procedure is most appropriate. An underestimation of debts could lead to choosing an unviable path.
Ensuring Fairness to All Creditors: Many Japanese debt resolution procedures, especially court-supervised ones, operate under the "principle of equality of creditors" (債権者平等の原則 - saikensha byōdō no gensoku), meaning similarly situated creditors should be treated equitably. Omitting a creditor from the process violates this principle.
Accuracy of Court Filings: In formal procedures like bankruptcy or civil rehabilitation, the creditor list and schedules of liabilities submitted to the court must be as accurate as possible.
Avoiding Severe Consequences in Bankruptcy: As mentioned, knowingly submitting a false or incomplete creditor list in a bankruptcy filing can be a ground for the denial of debt discharge.
Effective Negotiation: Accurate debt figures, especially after hikinaoshi keisan, provide a solid basis for negotiations with creditors in Nin'i Seiri or for formulating a feasible rehabilitation plan.
Identifying Strategic Opportunities: A thorough investigation might uncover significant kabarai-kin claims, which can be used to offset other debts or even provide a net refund to the debtor, dramatically altering the restructuring landscape.

Conclusion

The process by which Japanese lawyers ascertain the full extent of a debtor's liabilities is a meticulous and multi-faceted endeavor. It combines diligent client interviewing, systematic document review, formal information requests to creditors backed by legal obligations for disclosure, and careful analysis of financial records. This foundational investigation is not merely an administrative task; it is a critical diagnostic process that informs all subsequent strategic decisions and is essential for navigating the complexities of Japan's debt restructuring framework effectively and ethically. Only with a complete and accurate understanding of all debts can a lawyer truly guide a client toward the most appropriate and successful resolution of their financial difficulties.