Personal Bankruptcy in Japan: What is "Simultaneous Abolition" (Doji Haishi) and What are the Key Points for Obtaining a Discharge of Debts (Menseki)?

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

When individuals in Japan face insurmountable debt, personal bankruptcy (自己破産 - jiko hasan) offers a legal pathway to a financial fresh start. This court-supervised process aims to fairly distribute a debtor's available assets among creditors and, crucially, to grant a discharge (免責 - menseki) from most remaining debts. For many individual debtors with limited assets, a streamlined procedure known as "Simultaneous Abolition" (dōji haishi - 同時廃止) is common. This article explores the dōji haishi process, its distinction from trusteeship cases, and the critical aspects of obtaining a debt discharge in Japan.

Understanding Personal Bankruptcy (Jiko Hasan) in Japan

Personal bankruptcy in Japan is a formal legal procedure initiated when a debtor is deemed unable to pay their debts as they fall due (支払不能 - shiharai funō). The overarching goals are:

  1. Orderly Liquidation: To gather the debtor's non-exempt assets, liquidate them, and distribute the proceeds equitably among creditors according to statutory priorities.
  2. Debtor Rehabilitation: To provide the honest but unfortunate debtor with an opportunity for economic regeneration by discharging their obligation to pay most of their outstanding debts.

It's vital to understand that the mere commencement of bankruptcy proceedings does not automatically extinguish debts. A separate court order granting a "discharge of debts" (menseki) is required to achieve this release from liability.

The Dōji Haishi (Simultaneous Abolition) Procedure

Dōji Haishi is a specific track within personal bankruptcy designed for debtors who possess insufficient assets to cover even the administrative costs of a full bankruptcy proceeding, such as the fees for a bankruptcy trustee (hasan kanzai'nin - 破産管財人).

Definition and Rationale:
In a dōji haishi case, the court, upon determining that the debtor lacks distributable assets, issues an order commencing the bankruptcy proceedings and, in the same order or very shortly thereafter, an order abolishing (terminating) the proceedings. The rationale is that if there are no significant assets to manage or distribute, appointing a trustee and undertaking a full investigation and liquidation process would be futile and an inefficient use of resources.

Criteria for Eligibility:
While specific criteria can vary slightly by court jurisdiction, general guidelines exist. For instance, the Tokyo District Court has historically considered dōji haishi if the debtor's assets (excluding a certain amount of freely retainable cash) are valued below a certain threshold (e.g., less than ¥200,000 for non-cash assets, and freely retainable cash itself might be up to ¥330,000 under certain interpretations, though this can change). The absence of complex legal issues, such as suspected fraudulent transfers or significant non-dischargeable conduct requiring investigation, is also a factor.

The "Same-Day Interview" (Sokujitsu Mensetsu) System:
In some major courts like the Tokyo District Court, when a personal bankruptcy petition seeking dōji haishi is filed by a lawyer, a "same-day interview" system is often employed. The debtor's lawyer meets with a judge on the day of filing or within a few days thereafter. During this interview (typically brief, around 5-15 minutes), the judge reviews the petition and supporting documents, asks clarifying questions, and makes a preliminary assessment of whether dōji haishi is appropriate or if the case needs to be assigned to a trustee (kanzai jiken - 管財事件). If the case is deemed straightforward and suitable for dōji haishi, the court can issue the bankruptcy commencement and simultaneous abolition orders on the same day.

Key Advantages of Dōji Haishi:

  • Speed: The bankruptcy proceeding itself is concluded very quickly, often on the day of commencement.
  • Lower Cost: The debtor avoids the significant expense of a court-appointed bankruptcy trustee's remuneration, which must be prepaid as a court deposit in trusteeship cases.

The Alternative: Trusteeship Cases (Kanzai Jiken)

If a debtor does not meet the criteria for dōji haishi—for example, if they possess assets exceeding the threshold, if there are concerns about preferential payments or asset concealment, or if their conduct raises significant questions regarding grounds for non-discharge—the court will appoint a bankruptcy trustee (hasan kanzai'nin). This is known as a kanzai jiken (trusteeship case).

In such cases, the trustee undertakes a thorough investigation of the debtor's assets and financial history, liquidates non-exempt assets, and distributes proceeds to creditors. This process is more time-consuming and involves higher costs for the debtor (primarily the trustee's fee, which is paid from a court deposit made by the debtor). Even in trusteeship cases, a more streamlined version called "small-scale trusteeship" (shōgaku kanzai) exists in some courts for cases that are not overly complex but still require a trustee.

The Ultimate Goal: Obtaining a Discharge of Debts (Menseki)

For the individual debtor, the most critical outcome of personal bankruptcy is the discharge of debts (menseki). This is a separate court decision that releases the debtor from the legal obligation to pay their "dischargeable" debts remaining after the bankruptcy proceeding.

The Discharge Process:

  1. Application: In modern practice, the petition for bankruptcy commencement usually includes an implicit or explicit application for discharge.
  2. Investigation (if any): In dōji haishi cases, there is no trustee to conduct an investigation specifically for discharge purposes. The court relies on the documents filed and any information that comes to its attention. In kanzai jiken, the trustee will investigate matters relevant to discharge and provide an opinion to the court.
  3. Creditors' Objections: Creditors are given an opportunity to state their opinions or objections regarding the granting of discharge.
  4. Discharge Hearing (Menseki Shinjin Kijitsu - 免責審尋期日): The debtor is required to attend a discharge hearing at the court.
    • In many dōji haishi cases, particularly in jurisdictions like the Tokyo District Court, this hearing can be quite brief if no major issues have arisen. The judge may ask the debtor to confirm their identity and inquire about any changes in their circumstances since the bankruptcy commencement. It is presumed that the debtor's lawyer has already thoroughly explained the discharge system and its implications to the debtor.
    • In other courts, or if specific concerns exist, the judge might ask more detailed questions about the causes of indebtedness or the debtor's understanding of the discharge system.
  5. Court's Decision on Discharge: After considering all factors, the court decides whether to grant discharge.

Grounds for Non-Discharge (Menseki Fukyoka Jiyū):
The Bankruptcy Act (破産法 - Hasan Hō) Article 252, Paragraph 1, lists specific grounds upon which the court may deny discharge. Common grounds include:

  • Fraudulent Acts: Concealing, destroying, or fraudulently undervaluing assets to the detriment of creditors.
  • Preferential Treatment: Making preferential payments to certain creditors or providing security not originally obligated, with the intent to harm other creditors, when already insolvent.
  • Excessive Spending or Gambling ("Rōhi mata wa Tobaku"): Incurring substantial debt through lavish spending or gambling/speculative activities that are disproportionate to the debtor's assets or income.
  • Fraudulent Inducement of Credit: Obtaining credit through fraudulent means (e.g., misrepresenting income, assets, or other credit conditions) within one year before filing for bankruptcy or during the bankruptcy proceedings.
  • Failure to Cooperate or Provide Explanations: Failing to fulfill the duty to explain financial matters, providing false explanations, or refusing to cooperate with the court or (if appointed) the bankruptcy trustee.
  • Previous Discharge within Seven Years: Having received a discharge in a prior bankruptcy or completed payments under certain types of individual civil rehabilitation plans within the seven years preceding the current discharge application.
  • Failure to Comply with Duties under the Bankruptcy Act: This can include failing to maintain or submit required books or documents if the debtor was a merchant.

Discretionary Discharge (Sairyō Menseki):
Even if one or more grounds for non-discharge exist, Article 252, Paragraph 2 of the Bankruptcy Act grants the court the discretion to issue a discharge if, after considering all circumstances, it deems discharge to be appropriate. Factors the court might consider include the severity of the non-dischargeable conduct, the debtor's remorse and efforts to cooperate, the impact on creditors, and the debtor's prospects for economic rehabilitation. This provision allows for a more holistic and equitable assessment.

Effect of Discharge:
A final and binding discharge order releases the debtor from their obligation to pay all "dischargeable" debts that existed at the time of the bankruptcy commencement, except for any amounts distributed through the bankruptcy process.

Non-Dischargeable Debts (Hi-menseki Saiken - 非免責債権):
It is important to note that certain types of debts are not subject to discharge. These typically include:

  • Taxes and other public dues.
  • Liabilities arising from malicious torts committed by the debtor.
  • Liabilities arising from willful misconduct or gross negligence by the debtor that caused death or personal injury to another.
  • Alimony, child support, and certain other family-related obligations.
  • Wages owed to employees of the debtor (if the debtor was an employer).
  • Fines, penalties, and certain court costs.
    The debtor remains liable for these non-dischargeable debts even after receiving a general discharge order.

The Lawyer's Role in a Dōji Haishi Personal Bankruptcy

The role of the debtor's lawyer is critical, especially when aiming for dōji haishi and subsequent discharge:

  1. Thorough Pre-Filing Investigation: Before filing, the lawyer must conduct a meticulous investigation into the debtor's assets, liabilities, income, and the circumstances leading to indebtedness. This includes:
    • Asset Verification: Ensuring no declarable assets are overlooked that might push the case into a trusteeship. This involves scrutinizing bank passbooks (for at least the past two years) for unusual transactions, potential undisclosed assets, or preferential payments that might need to be addressed or explained.
    • Debt Origin and Nature: Understanding the cause of each debt is crucial for identifying potential grounds for non-discharge and preparing explanations.
  2. Accurate Preparation of Court Documents: The lawyer is responsible for preparing numerous detailed documents, including the petition for bankruptcy and discharge, a comprehensive list of creditors, a schedule of assets (shisan mokuroku), a statement of income and expenditures (kakei zentai no jōkyō), and a narrative report (chinjutsusho or hōkokusho) explaining the debtor's history and reasons for bankruptcy. Accuracy and completeness are paramount.
  3. Dispelling Debtor Misconceptions: Lawyers spend considerable time explaining the bankruptcy process, its consequences (both real and perceived), and dispelling common myths (e.g., loss of voting rights, entries on family registers) to alleviate client anxiety.
  4. Representation in Court Procedures: The lawyer represents the debtor in the sokujitsu mensetsu (if applicable) and accompanies them to the menseki shinjin kijitsu (discharge hearing), guiding them through these interactions with the court.
  5. Advising the Debtor: Providing ongoing advice on permissible conduct during and after the bankruptcy process, including restrictions on incurring new debt and the importance of financial re-education.

Common Debtor Concerns Addressed by Lawyers

Beyond the legal technicalities, debtors often have practical and emotional concerns:

  • "Blacklisting" and Future Credit: Lawyers explain the impact on credit information and the typical duration (5-10 years) before creditworthiness may be restored.
  • Impact on Family: Concerns about how bankruptcy will affect spouses or children are common.
  • Contact from Creditors: While the lawyer's intervention and bankruptcy filing usually stop direct collection, anxieties about this persist.
  • Privacy: While Official Gazette publication occurs, lawyers explain that this is not widely read by the general public and that other personal records like the family register remain unaffected regarding bankruptcy.

Conclusion

Personal bankruptcy in Japan, particularly through the dōji haishi (Simultaneous Abolition) route, provides an efficient mechanism for individuals with limited assets to address overwhelming debt. However, achieving the ultimate goal of a menseki (discharge of debts) is not automatic and requires careful adherence to legal procedures and honesty in disclosure. The presence of potential grounds for non-discharge necessitates a thorough pre-filing assessment by a legal professional, who will also guide the debtor through the court hearings and explain the long-term implications. While bankruptcy marks a significant financial event, for many, it is the necessary step towards a genuine economic fresh start.