Personal Bankruptcy Law Takes Effect Apr. 1

Taiwan's new "Consumer Debt Clearance Act" will take effect on Apr. 1, providing a means for hundreds of thousands of the island's people to slip out of the bonds of debt and resume a normal life-but with heavy chains attached.

Before emerging from bankruptcy under the new law, however, delinquent debtors will have to suffer strict restrictions on their spending for a period of six to 10 years.

The first batch of bankrupts is expected to be some 150,000 people who are responsible for delinquent debts on cash and credit cards, including 100,000 who have failed to honor previous debt-settlement agreements with local banks. (About 220,000 card debtors reached settlement agreements with banks around two years ago.)

Debtors who are capable of paying some of their debts will be allowed to apply to the courts for rehabilitation, while those unable to pay will be allowed to apply only for liquidation. Those who are granted rehabilitation will have to propose six-year repayment plans which, if approved by the courts, will entail payments every three months.

Those who seek liquidation will have to turn all of their property over to the court for disposition, with the proceeds going to pay their debt.

Under an "anti-luxury" stipulation proposed by the Bankers Association of ROC, debtors who enter rehabilitation will have strict limits imposed on their daily spending for six years; for those who go through liquidation, the period of restricted spending will be 10 years. For both, living expenses will be limited to NT$5,000 per month and NT$500 per transaction. They will not be allowed to use "luxury" transportation such as airplanes, the high-speed rail, or taxis. Some jobs, such as those with financial institutions and the civil service, will be forbidden. And of course, their bad credit records will follow them around for the period of restriction.

The provisions of the new bankruptcy law will not apply to people who have served as chairman or president of a big enterprises for the past five years, nor to founders of enterprises with monthly revenues in excess of NT$200,000. Those with unsecured debts of more than NT$12 million will also be excluded from the law's protection.

In addition to all of the other problems associated with bankrupt clients, banks will have the additional headache of assigning people to assure that they comply with the restrictions on their daily spending.