Wednesday, January 21, 2009

Visiting the sins of the father on the children: inherited debt

The recent news on inherited debt shows a very classic Taiwan problem -- a bad situation is identified, the law is "reformed", but the problem remains. The Taipei Times writes today:

Despite amendments to the Civil Code last year to prevent children from inheriting debt, the Taiwan Fund for Families and Children (TFCF) found that more than 90 percent of children born into debt continued to suffer.

“We had hoped that children would be spared the burden of inherited debt from deceased family members when the limited inheritance clause was added to the Civil Code on Jan. 4 last year,” TFCF executive director Miguel Wang (王明仁) told a news conference in Taipei yesterday. “A year has passed and sadly most children born into debt are still suffering from it.”

The amendment stipulates that an inheritor may apply for a waiver within three months of a family member’s death if the deceased had more debt than assets. He or she can also only pay off a debt equivalent to the inherited assets.
In 2007 the TFCF had predicted the laws, revised late in 2007, did not go far enough:
More than 70 percent of people would still be living with inherited debt even if a proposed amendment to the Civil Code is passed, members of Taiwan Fund for Children and Families (TFCF) said during a press conference in Taipei yesterday.

According to an amendment to the Civil Code that passed its first reading at the legislature last week, people under the age of 20 will be automatically entitled to "limited debt inheritance" -- meaning that they would only have to repay any debts they have inherited by using the assets they have inherited, not from their own pocket.

The proposed amendment to the code also applies for three years retroactively.

The Civil Code allows "limited debt inheritance," but only if the person inheriting the debt makes a request within three months of the benefactor's death.

"However, most people are ignorant of the law and they only find out they are in debt when they are pursued by creditors," TFCF social works division director Chou Hui-hsiang (周慧香) told the news conference.

A survey of more than 1,700 households by the organization showed that 24.6 percent of children under 18 are more than NT$500,000 in debt and almost 80 percent of those indebted children are currently attending junior high school or younger.

The revisions, passed in Dec of 2007, permitted limited relief, but were not made retroactive for persons whose family members had served as guarantors of debt. In an extreme case profiled in the article above, a Tsinghua student discovered in 2007 that he was liable for a debt contracted by his uncle in 1976, now worth over $50 million NT on 30 years of interest, because his father had stood as guarantor. Taiwan Review discussed the changes:

Previously, the Civil Code stipulated that an heir must assume all rights and obligations pertaining to the property of the deceased. Activist groups and legislators claim it is unfair for people to be responsible for a debt that they did not incur, resulting in the creation of social injustice. The problem is that if heirs were not notified of the death, or did not know they had to take certain legal actions to waive the debts, they would be unwittingly responsible. This usually happens to economically disadvantaged women and their children, Legislator Huang Sue-ying pointed out in a Nov. 7 news conference, calling attention to this issue. Lin Lu-hong, the president of Taiwan Women's Link quoted an example of a 6-year-old boy sued by a bank that lent about US$10,000 to his recently deceased mother. Research conducted by the TFCF in November this year showed that one in five economically disadvantaged families have fallen victim to inherited debts.

Another beneficial amendment stipulates that if one had been guarantor of others' debts, his or her heir only has to satisfy creditors to the value of the property acquired in the inheritance. According to the previous Civil Code, if a parent acted as the guarantor of a friend's debt, but the friend fled abroad to avoid repayment, the child would bear full responsibility. However, the new amendments do not apply if the debtor evades the debt while the guarantor is still alive.

Despite all the reforms, crushing debt remains. An underreported issue is the connivance of banks: a few years ago the mother of a student of mine stole her ID and chop and went to five different banks and contracted for five credit cards, which she promptly maxed out, leaving her daughter deeply in debt. Hard to imagine how this woman, obviously much older than the ID, was permitted to contract for debt in her daughter's name, without the active cooperation of bank officials. In this case, the banks fought even these milquetoast revisions.....


Anonymous said...

IANAL, but your student was defrauded by her own mother and possibly the bank.

You also have to sign for credit card purchases, and could show that it wasn't your signature, no?

I am guessing that she didn't want to press charges against her mother, so she took the debt.

That is not exactly like inherited debt. The scenario of the son being on the hook for the father acting as guarantor is crazy.


vin said...

Thanks for this post; I had no idea that this problem existed, or that it existed on this kind of scale. Surely these laws are often part of the reason parents murder their children in "family suicides" here.

Joel Haas said...

how long has inherited debt been an aspect of Taiwanese society? Was it a factor under the Japanese? Was it a law under the KMT or the Qing on the mainland before 1949?
Hard to believe a society as technologically and economically advanced still widely uses such a concept.

Anonymous said...

This kind of feeds into the whole KMT/New Party fixation with codifying their definition of "Traditional Chinese Culture" and forcing their "religion" on everyone else.

Remember a few years ago when Diane Lee was trying to pass a law to force children to be financially responsible for their parents after A-Mei's dead beat dad was found to be living in squalor.

I believe they were going to codify "filial piety", which is like trying to codify Deuteronomy in a modern legal system.

Mark said...

This is a really interesting piece, Michael.

I can understand how someone can be liable for a debt they sign off on as a guarantor, and it is reasonable that this liability would continue past the death of another party involved in the contract. What's shocking though is that people can actually inherit debt from their parents, even if they haven't personally acted as guarantors.

Allowing people to "apply for Preventing creditors from pursuing relatives of the deceased (unless those relatives had signed as guarantors) is nuts.

Can't that Tsinghua student file for bankruptcy?

Arty said...

This kind of feeds into the whole KMT/New Party fixation with codifying their definition of "Traditional Chinese Culture" and forcing their "religion" on everyone else.

I THINK Japanese and most Asian societies have similar inherited debt laws. I just love how you spin it as a Chinese "religious." while it probably has something to do with the entire Asian culture influenced of course mainly by Chinese. Personally, I think Asian countries laws on bankruptcy are too strict, and the Western ones are too loose. I don't think inherited debt is right, and should be abolished. However, the debtors shouldn't get off too easily either. There should be no protection of debtors' personal properties as some of the US states have i.e. best known Florida's homestead protection law!

vin said...

Of course “traditional” Chinese culture is religious, Arty. And so is contemporary mainstream Taiwanese culture. Ancestor worship is still practiced by most Taiwanese – by some still quite fervently – and filial piety dogmas and the related supernatural dogma of “harmony” (derived from astrology/astronomy in the Zhou dynasty and earlier) are arguably more engrained in the social structure here today than are religious dogmas preached by centralized religious institutions in the West.

I guess you’re thinking that only temple functions and temple-promulgated rules and dogmas count as religion here. Christians and more devoted Buddhists (the ones who really follow masters) here may agree with you there, but many of those Buddhists still practice ancestor worship, and nearly all Christians here adhere to the harmony value in almost all situations that do not, to their minds, beg for a proselytizing pitch. (Admittedly with some that’s often; and some Buddhists come on pretty strong to their neighbors, too, though they don’t do that with us Westerners.)

It’s in the larger Tudi-gong shrines, not in the large temples, that you see that these laws are religious in origin and character. Look there at the filial piety devotional mosaics. See the little boy who has bared himself so that the mosquitoes will bite him and thus let his mother keep sleeping and then tell me: What’s the difference between this standardized, everywhere-repeated mosaics and the Stations of the Cross in a cathedral?

If you think a little about whether filial piety and harmony are “natural” in the way Chinese philosophy has, for thousands of years now, said they are, you’ll find that much of this “natural” is silliness ; it displays situation-attuned efficacy only -- in feudal-agrarian societies and, with smart tweaks, in industrializing societies. But beyond those two situations? It’s still fine stuff for the maintenance and administration of power, but that in no way makes it “natural” – and even in the previous two cases it’s not “natural: it’s merely contingently effective doctrine.

Yet it continues to be taught as “natural” in the real religious institutions in Taiwan: primary and secondary schools. And a genuine “natural,” a “natural” that is grounded in genetics, including the non-plastic elements of human psychology, today emerges in Taiwan as conditioning and resistant response: the persistence of the old religion and continuing attempts to inculcate it; student apathy; short-sighted governmental policy; a debilitating “identities” conflict; and vapid media.

But yes, Arty, like you I’m not interested in framing this discussion in terms of KMT, New Party, DPP or anything else related to parties, because it isn’t only KMT/NP folks who follow this religion. They are merely fundamentalists. And what does any of that matter, anyway, if the aim is to simply see clearly about what’s natural and what’s supernatural – and therefore about what is and isn’t religion? (That’s my chief aim.) Of course Nature in no way ordains the pre-industrialization idea that a wife should be subservient to her mother-in-law; if you want that idea to stand as “natural” through all stages of a culture’s economic development, you had better call it God’s will, as is done in Islam. And if obeying unhappy, demanding parents has not once in human history transformed such loutish parents into happy persons (an effect many here in Taiwan have been taught such efforts might yield), what is Nature trying to tell us about what’s natural? And when “harmony” repeatedly drives anger underground so that it re-appears displaced and enlarged in the political sphere where it gets dispersed just enough to not boil over but never enough to actually move beyond the same old progress-hobbling disputes and problems, is “harmonious” indirectness preventing otherwise more serious conflict? The greater use of directness in most walks of life in the West and the consequent greater civility in politics suggests otherwise. In what way then is the idea that “harmony” is a “natural” value anything but mere superstition?

Of course it’s religion, Arty; it’s the supernatural belief that this stuff is natural which qualifies it all as religion. It’s religion that doesn’t crusade or try to proselytize other cultural groups because its hierarchical conceptions naturally bred chauvinistic/racialist assumptions that made it unimportant, once China was no longer more powerful than barbarian cultures, whether others were “civilized” (verb; re: converted) or not. Outsiders are now still lauded if they, too, like these doctrines, but they remain not-Chinese or Taiwanese, so it’s actually no big deal either way. But if a local does not adhere? The sanctions are quite serious. True, they’re entirely social and economic – no one will be hauled before an ecclesiastical court, dispossessed, or burned at the stake. But the person will not just be viewed not just as unorthodox or weird; he’ll be viewed with shock and with moral distaste; he’ll be seen as a reprobate. And if he is cheeky enough when young to be a heretic in the secular church – at school – he will draw down corporal punishment.

From what I know (not much), Japan is both different and the same. Ancestor worship and the harmony value are both central to Shinto, too, but in Japan primogeniture prevails, so younger sons often went off to join samurai groups or some other enterprise – meaning filial piety never attained in strength to nearly the levels it does in Chinese societies. Loyalty traditionally was given to a wider group. And Shintoism combines both aspects of ancestor-worship religion into one diverse creed: Ancestors are kami the same as the small nature gods are. So though most Japanese have ancestor tablets in the preeminent residence in the family line, unlike Chinese, they can worship their ancestors in the temple – one-stop worship, if you will. Anyway, that’s what I gathered from a few things I read sometime back. Probably the comparison is an oversimplification in a lot of ways; I don’t know; I’ve never been to Japan.

Actually, though, I think it's fine if Taiwanese want to continue with this relgion -- so long as they don't continue to call it natural; still calling it "natural" today stems from a racialist empiricism; all evidence from other parts of the world that it's not natural is shunned because those parts lack the core virtue of "Chineseness." And that's not cool: it's racism.

I agree with you that bankruptcy laws are too loose in the States, Arty, and that inherited debt should be abolished in Taiwan.

grace said...

Let's assume that a women has an American husband and is currently living in Taiwan. If her father left debts behind, does her American husband need to go through the documentation to refuse inheritance of the debt along with the wife?