The purpose of Rehabilitation proceedings is to seek maintenance and rehabilitation of business entities under the supervision of the court, by adjusting the claims and equities of the entities concerned, such as creditors and equity holders. The court, upon a request from a debtor, a creditor, or an equity holder, renders an order for relief, and appoints a trustee. In principle, a debtor is appointed as a trustee. Debtor-in-Possession System, in which the Court does not appoint any trustee but leave the right of administration and disposal of the estate to the debtor, is allowed under certain circumstances, such as when a debtor is an individual, a medium sized business entity, or a public company with sound corporate governance. A trustee is required to submit, within the period fixed by the court, a reorganization plan which contains a detailed program for administration and disposal of the estate as well as a plan for adjustment of debts. If the plan is accepted by creditors or equity holders, and confirmed by the court, the rights of the creditors or equity holders are altered according to the plan. In the event that a reorganization plan is implemented by the debtor properly, the court shall close the case unless the debtor is likely to fail in carrying out the plan in the future.

The liquidation proceedings are proceedings whereby a court-appointed trustee collects the property of the debtor, converts that property to cash, and distributes the cash to the creditors. The court, upon a request from a creditor or a debtor, declares bankruptcy if the debtor is deemed unable to make payments. When the debtor has no or little property, the distribution proceedings may be omitted. Debtors, who are individuals, can be discharged from remaining debts. The granting of a discharge may not be given if it is deemed that bankruptcy, in whole or in part, was caused by extravagance or fraudulent practices.

Individuals with debts below a statutory threshold and with likelihood of sufficiently stable and regular income in the future are entitled to reorganization proceedings for individuals, by which debtors may adjust debts and make installment payments to creditors pursuant to a court-confirmed plan. Once the debtor repays a certain amount of debt within a planned period not exceeding 5 years, he/she may be discharged from the remainder of the debt. The debtor should submit a list of the creditors and file a plan for payment. A court-appointed standing trustee will investigate on the estate and income of the debtor, and advise on the plan for payment. After the plan is confirmed by the Court, the debtor should repay the debt according to the plan. After full implementation of the plan, the debtor can be discharged from the remaining debt.