Abstract: With deepening of China’s socialist market economy reform, personal debt conflicts have become increasingly prominent, prompting growing calls for a formal personal bankruptcy system. The localized development of such system should proceed along two dimensions: substantive and procedural. At the substantive level, the design should cover eligible debtors, the scope of application, grounds for bankruptcy, and the mechanisms of disqualification and rights reinstatement. At the procedural level, the priority status of out-of-court settlement should be established, and the functional division between reorganization and liquidation procedures should be clarified. In addition, a court-granted discharge model should be introduced. Building upon this foundational framework, China should further optimize its personal bankruptcy system in four key areas. This involves establishing clear criteria for identifying honest-but-unfortunate debtors and refining the personal credit information system. Concurrently, it requires strengthening public awareness and guidance on credit culture, while also implementing safeguards to prevent abuse of the bankruptcy process.