Debt Relief

Japan offers three main approaches to debt relief, each suited to different financial situations.

Voluntary Arrangement (Nin-i Seiri): An attorney negotiates directly with creditors to reduce or eliminate future interest and establish new repayment terms. This is a private procedure that does not involve the courts. It is the simplest option and offers privacy, but typically cannot reduce the principal amount owed. Costs approximately ¥30,000-50,000 per creditor.

Personal Rehabilitation (Kojin Saisei): A court-supervised process under the Civil Rehabilitation Act (Art. 221) that can reduce total debt to between one-fifth and one-tenth of the original amount, repaid over 3-5 years. The Housing Loan Special Provision (Art. 196) allows debtors to keep their home while restructuring other debts. Total debt must be under ¥50 million (excluding mortgage).

Bankruptcy (Jiko Hasan): A court petition for complete discharge of debts under the Bankruptcy Act. After the court grants a discharge order (Art. 252), the debtor is released from payment obligations. Assets above ¥990,000 in cash may be liquidated. Certain debts such as taxes and child support cannot be discharged.

Before the full implementation of the revised Money Lending Business Act in June 2010, many consumer finance companies charged interest rates in the so-called "grey zone" — above the Interest Rate Restriction Act limits (15-20% depending on principal) but below the Investment Act ceiling (29.2%).

Borrowers who paid these excessive rates can reclaim overpayments through unjust enrichment claims (Civil Code Art. 703-704). The statute of limitations is 10 years from the last transaction date. Claims on fully repaid loans do not affect credit records.

Following the Supreme Court ruling of January 13, 2006, which strictly limited the "deemed voluntary payment" defense, successful overpayment claims became widespread.

The voluntary arrangement process begins when an attorney sends a notice of representation to each creditor, which immediately halts all collection activities and demands (Money Lending Business Act Art. 21-1-9).

The attorney then requests transaction histories, performs recalculation of interest using legal limits, and proposes settlement terms — typically waiving future interest with repayment over 3-5 years.

Advantages: No court involvement, only specific debts targeted, no public record in the official gazette. Disadvantages: Credit information registration for approximately 5 years, no enforcement power if creditors refuse, principal reduction is rare.

Personal rehabilitation is particularly valuable for homeowners because the Housing Loan Special Provision allows mortgage payments to continue while other debts are substantially reduced.

Minimum repayment amounts: Under ¥1M: full amount; ¥1-5M: ¥1M; ¥5-15M: one-fifth; ¥15-30M: ¥3M; ¥30-50M: one-tenth.

Two types exist: Small-scale Personal Rehabilitation (Art. 221, requires creditor consent) and Salaried Worker Rehabilitation (Art. 239, no creditor consent needed but stricter income requirements).

The liquidation value guarantee principle ensures creditors receive at least as much as they would under bankruptcy.

Approximately 70% of personal bankruptcy cases in Japan are processed as simultaneous closure cases (Art. 216), a simplified procedure where no significant assets exist. Court costs are minimal (¥10,000-30,000).

For cases with assets or requiring investigation of discharge objections, a trustee is appointed (administration case). The deposit for trustee fees ranges from ¥200,000-500,000.

Grounds for denial of discharge (Art. 252-1): gambling/wasteful spending debts, concealment of assets, fraudulent credit transactions, or a prior discharge within seven years. However, discretionary discharge (Art. 252-2) is commonly granted even when grounds for denial exist.

Non-dischargeable debts (Art. 253-1): taxes, child support, and damages from intentional tortious acts.

Occupational restrictions: During the period from bankruptcy filing to discharge, certain professions are restricted, including attorneys, tax accountants, insurance agents, and security guards.

Debts in Japan are subject to statutes of limitations, after which the legal obligation to pay can be extinguished.

Limitation periods (Civil Code Art. 166-1): For debts incurred after April 1, 2020: 5 years from when the creditor knew they could exercise the right, or 10 years from when the right became exercisable. For older debts: commercial debts were 5 years, civil debts 10 years.

Invocation requirement: The passage of time alone does not extinguish the debt — the debtor must formally invoke the statute of limitations (Art. 145), typically by sending a content-certified letter (naiyou shoumei yuubin).

Interruption and renewal: Court claims, seizure, or acknowledgment of debt (including partial payment or requesting an extension) will reset the limitation period (Art. 147-152). Debtors receiving collection notices after a long period should consult an attorney before responding to avoid inadvertently resetting the clock.