Clause 7, article 556 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “the Clause”) provides the debtor with a rather feasible solution towards economic restoration, by stipulating that the debtor be discharged from claims not include...
Clause 7, article 556 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “the Clause”) provides the debtor with a rather feasible solution towards economic restoration, by stipulating that the debtor be discharged from claims not included in the schedule of creditors, unless the creditor proves that the debtor knowingly left out his or her particular claim. However, the clause leaves room for consideration, for it may be viewed unconstitutional in the aspect that it places excessive burden on creditors who are not on the schedule of creditors due to reasons attributable to debtors; the clause establishes a wide range of immunity for debtors while requiring the creditor to prove that the debtor knowingly left out the creditor`s claim from the schedule of creditors for a certain claim to be considered non-dischargeable. Such tolerance, in the current atmosphere where debtors acting in bad faith are common and bankruptcy courts usually fail to provide each case with sufficient supervision, may be evaluated as an infringement on property rights of creditors. First of all, the Clause violates essential aspects of creditors` property rights by making it practically impossible for bankruptcy creditors to stake a claim on what is rightfully theirs once it is not included on the schedule of creditors, regardless of reasons attributable to them. Even though certain restriction upon the rights of creditors who did not participate in the procedures of bankruptcy may be necessary in order to achieve the goals of individual bankruptcy proceedings, the Clause violates the principle of proportionality of property regulation in that it does not limit the disadvantage of creditors to an appropriate level. Comprehensively looking into the many articles restricting bankruptcy creditors` rights, it is apparent that the Clause infringes on the procedural rights of creditors that are not on the schedule of creditors, and goes against the principle of due process by limiting their substantive rights to an extent that is disproportionate. Finally, there is no reason to treat creditors in rehabilitation proceedings and creditors in bankruptcy proceedings differently, since they are in identical positions of losing their claims unwillingly due to courts acting on behalf of the recovery of honest, yet unfortunate debtors who have acted in good faith. Rather, considering the fact that while creditors in rehabilitation proceedings are at least given the benefit of partial reimbursement, the possibility of reimbursement is close to zero for creditors in bankruptcy proceedings, the latter group calls for further protection procedure-wise. Yet the Clause limits the rights of the latter, who are already devastated by the reality of assuming only the amount distributed to them after liquidation, more than that of the former. Furthermore, taking into account that it is impossible for creditors of individual bankruptcy case excluded from the schedule of creditors to receive distribution, there is no rational reason to discriminate them from those on the schedule of creditors by presuming that their bankruptcy claims are discharged from reimbursement. In these aspects, compared to creditors in rehabilitation proceedings or creditors on the schedule of creditors in bankruptcy proceedings, the Clause discriminates bankruptcy creditors, who were involuntarily excluded from the bankruptcy process, without any plausible reason.