Under Chinese law, individuals who provide personal guarantees for business-related borrowings retain liability even when their companies go bankrupt. In the 1986 Enterprise Bankruptcy Law, China set up a system for businesses to seek debt relief through restructuring and bankruptcy proceedings. However, there is no way for individuals to obtain legal relief from unaffordable debts due to the absence of personal bankruptcy law.

A bankruptcy system for individuals could provide protection for entrepreneurs who are honest but unlucky and allow them to make fresh start. It could also ensure that creditors are fairly compensated and create as a standard market-exit mechanism.

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