The immediate goal of lawyer Toshi Yoshinari is to keep his clients from getting a divorce.

For business owners engaged in bankruptcy proceedings, divorce is a common route to protect spouses, who often sign as joint guarantors.

“Divorce is one of the sacrifices society effectively requires of failed businessmen,” Yoshinari said. “On top of losing personal assets and anything else he and his family have accumulated, the psychological devastation keeps a bankrupt businessman from making a comeback.”

To help business owners avoid the high social and economic costs of personal bankruptcy, the government in April 2001 put into effect fast-track civil rehabilitation laws geared toward individuals, allowing shop owners to apply for court protection from creditors while their businesses remain intact.

Coupled with a civil rehabilitation law put into effect a year earlier, the measures ensure people needn’t lose everything before they set about rebuilding their lives.

However, only 1,732 business owners and 4,478 salaried workers filed for protection under the new laws in the year that ended March 31, according to the Supreme Court.

When combined, these figures are tiny compared with the 160,440 who filed for personal bankruptcy in the 2001 calendar year.

Former bar owner Jiro Oneida, not his real name, said he sought legal help too late.

In December, he closed his establishment in Chuo Ward, Tokyo, which he had owned for 11 years. When his business began to stumble in 1997, the 38-year-old Oneida started making the rounds at consumer finance companies in an effort to meet loan repayments.

By 2000, he had borrowed money from seven consumer finance companies and his debts totaled 40 million yen — equal to about 10 years’ worth of profits when business was at a peak.

“That bar was my baby. I just couldn’t let it go,” Oneida said.

After moving here from South Korea in 1984, he scrimped on food — at one stage surviving for a week on water and convenience store sweet bean buns — to save the 2 million yen needed to start the bar.

Oneida is not alone. Rather than default on obligations and risk causing trouble for loved ones, shop owners delay their applications for legal proceedings.

The debts accordingly zoom past the 30 million yen maximum allowed under the civil rehabilitation law.

Filing for personal bankruptcy is only possible when a debtor has taken all possible measures to make right by his or her obligations. This effectively means the seizure and disbursement of all assets, including the applicant’s home and business assets.

Filing for personal bankruptcy also strips a debtor of the right to become an executive at a company — or pursue a legal or accounting career — until it can be demonstrated that the bankruptcy was caused by forces beyond the business owner’s control.

In contrast, the personal civil rehabilitation laws allow owners of small businesses to keep their professional practice licenses and keep their shops open.

Successful applicants must have a steady income, receive the approval of half their creditors and return either one-fifth of their total liabilities (not including housing loans) or 1 million yen, whichever is greater, within three, or in some cases, five years. Either way, their obligation to pay will not exceed 3 million yen.

Lack of information, however, has prevented business owners from seeking help, and they have instead headed for the easy money offered by consumer finance firms.

“Even if shop owners go to City Hall for advice, they rarely get adequate information,” said Yoshinori Ozawa, who heads a credit and loan advisory center in Shizuoka. “Applying for civil rehabilitation is complex and takes a lot of paperwork.”

It is also difficult for business owners to get the go-ahead from their creditors, lawyers say.

“Even if I was able to apply, I probably wouldn’t have found any financial institution willing to extend credit afterward,” Oneida recalled.

Bankers agree.

Successful applicants are placed on a credit blacklist that limits their ability to apply for loans for three years.

“Even after the three-year period, the information (on blacklisted people) is available to us. A business will have to show real evidence of profitability to convince credit unions to offer funds again,” said Shinichi Masuda, a former loan officer at a credit union in Tokyo.

To allow individuals to stage a comeback, even after their businesses fail, banks must re-examine their lending practices, argued Akira Isozaki, chairman of the Bankruptcy Prevention Mutual-Aid Association in Shibuya Ward.

Isozaki launched the association in 1986 after three friends committed suicide following the failures of their businesses.

“Banks’ responsibilities are to assess risk. It is because they make irresponsible loans based on collateral and guarantors that loans go sour in the first place,” Isozaki said.

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