Article 15 of the Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in Adjudicating Cases of Objections to Enforcement (hereinafter referred to as the “Interpretation on Objections to Enforcement”) for the first time clarifies that, where statutory conditions are met, a real estate debt‑settlement arrangement may preclude enforcement against ordinary monetary claims. In practice, however, some judges continue to hold divergent views regarding the interpretation and application of this provision. Through research and analysis, the author seeks to clarify the relevant issues, with a view to providing guidance for the adjudication of similar cases.

　　According to incomplete statistics, from January 2023 to April 2026, Zhejiang courts concluded a total of 185 cases involving requests to exclude enforcement based on the settlement of debts with real estate, accounting for approximately 8% of all enforcement‑related objections to execution. Among these, 51 cases were adjudicated after the promulgation of the Interpretation on Enforcement Objections. Such cases primarily present the following issues:

1. It is difficult to verify and analyze the facts of the case. Debt‑for‑property transactions involve a triple legal structure—comprising the pre‑existing debt relationship, the newly created debt relationship, and the interplay between the old and new obligations—and give rise to various legal frameworks, such as payment by substitution, novation of the debt, and performance of a new obligation. Consequently, the authenticity and legality of both the new‑debt and old‑debt relationships between third parties and the judgment debtor fall within the scope of judicial review. In practice, to facilitate the transfer of title, third parties often fulfill the debt‑for‑property agreement by entering into a real‑estate sales contract with the judgment debtor; they may also designate another party to execute the contract or further assign the debt‑for‑property claim, with the assignee directly signing. Such arrangements entail multiple dispositions and involve numerous stakeholders, resulting in a complex web of intertwined legal relationships, requiring the court to examine two or even several distinct legal relationships in a single case. Moreover, in actions challenging enforcement, the legal relationship at issue exhibits an external character relative to the enforcement basis: the enforcing creditor is not a party to the debt‑for‑property agreement, while the judgment debtor, lacking any direct interest, frequently fails to appear in court. Among the cases examined, the rate of non‑appearance by the judgment debtor reached 67.71%, leaving the court able to assess only on the basis of unilateral evidence presented by the third party, thereby limiting the completeness and objectivity of fact‑finding.

2. Difficulties in interpreting and applying legal provisions. Previously, Zhejiang courts had adopted a negative stance toward the exclusion of enforcement based on debt‑for‑property settlements. Even after the issuance of the Interpretation on Actions for Objection to Enforcement, some judges have yet to abandon their longstanding view that such settlements constitute preferential repayment and undermine the principle of equal creditor rights, demonstrating an insufficient understanding of the theoretical and practical underpinnings of the shift in adjudicatory rules. In certain cases, there has been a failure to distinguish between the validity of the contract and its enforceability against execution, leading to the uncritical application of Article 27 of the Interpretation by the Supreme People’s Court on Several Issues Concerning the General Provisions of the Contract Section of the Civil Code of the People’s Republic of China (hereinafter referred to as the “Interpretation of the General Provisions of the Contract Section”) to proceedings involving objections to enforcement. Moreover, some cases have not clearly delineated the boundaries of applicability between the debt‑for‑property rule set forth in Article 15 and other provisions governing the exclusion of enforcement with respect to real estate, resulting in divergent views on the types of rights that may be invoked to claim exclusion from enforcement based on the debt‑for‑property claim at issue. Similarly, the scope of bona fide third parties and the additional constituent elements of real‑estate debt‑for‑property transactions in contexts involving multiple transfers remain without a unified standard of adjudication.

3. Balancing the interests of all stakeholders is challenging. Real estate assets generally command high market values, while the judgment debtor’s available assets are often limited. The outcome of an action challenging enforcement directly determines which party’s civil rights and interests will be satisfied. Following the promulgation of the Interpretation on Actions Challenging Enforcement, some creditors, relying on previously established judicial standards, find it difficult to accept that, in cases involving identical monetary claims, debt‑settlement transactions should afford priority protection. They also tend to harbor widespread skepticism about the authenticity of the relationship between new and old debts, placing considerable pressure on judicial reasoning and on efforts to secure compliance with the court’s decision.

4. It is difficult to identify and determine false litigation. Debt-for‑property settlements are a high‑risk area for fraudulent litigation. Parties fabricate debt relationships, engage in circular fund transfers to inflate creditor claims, and backdate debt‑settlement agreements, thereby constructing a comprehensive chain of evidence and creating the appearance of legally compliant transactional forms. In some cases, third parties—despite having no substantive dispute with the debtor—first initiate litigation over a house‑sale contract, obtain a final judgment in another case confirming the underlying creditor‑debtor relationship and the validity of the debt‑for‑property arrangement, and employ tactics that are highly deceptive and concealed. As a result, it is exceedingly difficult for courts to identify and verify such schemes through routine case review.

　　Previously, both legal theory and judicial practice rejected the exclusion of enforcement effects for debt‑settlement by way of property, with the core rationale resting on the principle of equal creditor rights and the need to prevent fraudulent litigation. Article 15 of the Interpretation on Actions for Objection to Enforcement explicitly marks a policy shift from “strict restriction” to “limited exceptions,” the legitimacy of which can be understood and substantiated along the following lines:

1. A Reexamination of the Principle of Equal Creditors’ Rights. From the perspective of functional positioning, creditors’ equal satisfaction of claims is typically safeguarded and realized through bankruptcy proceedings, whereas enforcement proceedings place greater emphasis on upholding the authority of judicial judgments and satisfying individual creditor claims. As a derivative action arising out of enforcement proceedings, the action for challenging enforcement decisions combines elements of both litigation and enforcement; accordingly, it should balance substantive protection of equality with the pursuit of enforcement efficiency. On the premise of recognizing the principle of creditor equality, appropriately affording protection to bona fide creditors who actively exercise their rights in set‑off arrangements can help enhance the overall effectiveness of the enforcement process.

　　Where a debt‑for‑property settlement is based on a genuine creditor’s right as consideration and the amount of the debt‑for‑property payment is broadly equivalent to the value of the real estate, the debtor’s passive assets (the old debt) and active assets (the property offered in satisfaction) undergo an equivalent exchange, leaving the debtor’s net liability estate unchanged and without undermining the pool of assets available to other creditors for satisfying their claims. If the debt‑for‑property transaction amounts to an无偿 transfer or a transfer at a manifestly unreasonable price, thereby causing an improper depletion of the debtor’s liability estate, such conduct may be rectified through the doctrine of avoidance; this does not warrant a wholesale rejection of the enforceability of debt‑for‑property settlements. Moreover, the principle of equality among creditors is relative in nature. In judicial practice, even in cases such as “one item sold twice,” courts will differentiate the order of protection afforded to creditors based on factors like the degree of public notice of rights and the stage of performance, as reflected in Article 15 of the Minutes of the Eighth National Conference on Civil and Commercial Trials (Civil Section), which sets forth the priority of rights in the performance of contracts involving the sale of the same property to multiple buyers.

2. The normative function of the requirement of possession. Based on the procedural structure of enforcement‑related objections and the structural characteristics of debt‑for‑property settlements, the controversy over the effectiveness of such settlements in resisting enforcement essentially involves addressing two sets of relationships: first, the internal transformation from an old debt to a new one—namely, whether the debtor’s or creditor’s option to perform under the old versus the new obligation is extinguished; and second, the external competition between the debt‑for‑property claim and other ordinary claims—specifically, whether the debt‑for‑property claim may enjoy the effect of resisting enforcement against general monetary claims. Article 15 of the Interpretation on Enforcement‑Related Objection Litigation stipulates the requirement of “lawful possession prior to seizure,” which embodies a dual institutional value. First, it serves a material‑substantive function: the acquisition of possession signifies that the creditor has effectively opted to accept performance in kind, thereby completing the internal transformation of the old‑new debt relationship and shifting the debt‑for‑property arrangement from a consensual agreement to a form of payment by substitution. Second, it fulfills a publicity function: the continued existence of possession produces an external declaratory effect, endowing the debt‑for‑property claim with both dominion over the specific object and adversarial force vis‑à‑vis third parties, whereas ordinary monetary creditors typically lack such a concrete connection to a particular asset.

3. Institutional Responses to Real-World Needs. “Making the most of resources and ensuring the smooth flow of goods” is a fundamental value pursued by legal systems such as property law and contract law. In judicial practice, there are numerous cases in which construction-in-progress, newly built commercial housing that has not yet undergone initial registration, or older properties facing obstacles to title registration are used to satisfy debts. The objective reality that the collateral does not correspond to its nominal status is not the result of the creditor’s own negligence in completing transfer‑registration procedures. After taking possession of the real estate, the creditor often proceeds with renovation, use, or leasing, and may even transfer the property to others in order to enforce the debt, thereby establishing a stable pattern of interests. Under such circumstances, permitting other ordinary monetary creditors to dispose of the same immovable property through compulsory enforcement proceedings would not only disrupt the existing order but could also give rise to subsequent difficulties in enforcement, leading to the inefficient use and waste of resources.

　　From the perspective of practical trends, as debt disputes mount and debtors’ repayment capacity remains weak, debt-for‑property settlements have become a widely adopted method for resolving indebtedness in both the real estate market and the financial sector. If the rights status of the collateralized asset remains uncertain over an extended period, this can impede the creditor’s ability to dispose of the asset and manage risk, thereby undermining the institutional effectiveness of debt-for‑property settlements as a debt‑resolution mechanism. Article 15 of the Interpretation on Actions for Objection to Enforcement confers upon bona fide and lawful debt‑for‑property transactions the effect of precluding enforcement, which aligns with the value of maximizing the utility of assets while also ensuring a fair allocation of risks and stabilizing market expectations.

1. Comprehensively understand the normative intent of Article 15. The enforcement‑exclusion effect of debt‑settlement by way of real property constitutes a “limited exception” to the principle of equal treatment of creditors; accordingly, the policy orientation must be properly calibrated to strike a balance between safeguarding bona fide transactions and preventing fraudulent litigation. On the one hand, the significant social value of debt‑settlement through real property as a non‑litigious means of resolving debt disputes should be recognized; on the other hand, it must not be allowed to degenerate into a tool for malicious collusion or sham litigation by the parties involved.

2. Properly handle the coordinated application of different regulatory frameworks. First, it is necessary to distinguish between the validity of an agreement and its effect in excluding enforcement. Articles 27 and 28 of the General Provisions on Contracts Interpretation address issues of validity determination and performance under contract law, whereas Article 15 of the Interpretation on Actions for Objection to Enforcement focuses on the conflict of rights among different creditors in enforcement proceedings. The two sets of provisions differ fundamentally in their normative hierarchy and standards of review. The validity of a debt‑settlement agreement is merely a prerequisite for falling within the scope of Article 15 of the Interpretation on Actions for Objection to Enforcement; even if such an agreement concluded after the imposition of a seizure is valid, it may not be invoked against the enforcing creditor. This principle can also be construed in light of Article 27 of the General Provisions on Contracts Interpretation, which provides that a property‑for‑debt agreement, even if confirmed by the court, cannot prevail over bona fide third parties. Furthermore, pursuant to Article 28 of the General Provisions on Contracts Interpretation, where a debt‑settlement by way of delivery of property is effected before the maturity of the obligation but without transferring ownership, the debtor does not enjoy any priority in repayment, let alone the right to exclude enforcement.

Second, the relationship between this provision and other exclusionary provisions on enforcement is clarified. Article 15 of the Interpretation on Actions for Objection to Enforcement, together with Articles 11, 14, and 17, forms a normative framework for excluding enforcement in the real estate context. These provisions differ in their protective intensity and review standards; accordingly, relevant rules should be applied correctly by taking into account both the parties’ claims and the substantive nature of the transaction at issue. A third party who has entered into a lawful and valid house sale contract with a creditor holding a debt‑settlement claim is entitled to invoke Article 15 of the Interpretation; if the third party meets the criteria of a consumer, they may also invoke Article 11. However, where the underlying obligation is an ordinary monetary claim, even if the third party pays the purchase price by extinguishing the old debt, such payment remains within the scope of Article 15’s assessment. In practice, when a third party pays part of the purchase price through debt‑settlement while contributing the remainder as actual cash, and upon review satisfies the other requirements of Article 11, it may be appropriate to protect only the rights corresponding to the portion paid in cash, without improperly elevating the debt‑settlement portion to the category of consumer‑buyer protection. Where the purchase price is paid partly through debt‑settlement and partly by other means, the review criteria of Articles 14 and 15 may be jointly applied. As for cases involving “construction‑for‑housing” arrangements, the special provisions of Article 17 should take precedence: the court must examine whether the property subject to debt‑settlement and the construction project undertaken by the third party are identical; if they are not, the matter falls under the purview of Article 15.

3. Flexibly calibrate the degree of stringency in reviewing the requisite elements. Article 15 of the Interpretation on Actions for Objection to Enforcement requires that specific review be aligned with the functional purposes of each requisite element, with due flexibility applied according to the circumstances—adopting a lenient approach where appropriate and a strict one where warranted. Even when a third party enters into a real estate sales contract at the instruction of a creditor receiving debt satisfaction, such party retains the right to invoke this provision. Where the parties’ intention to discharge the debt is clear, the value of the debt‑satisfaction asset has been determined at the time of contracting, and the maturity date of the underlying obligation had already passed prior to the seizure, the requirement that “the debt‑performance deadline has expired” may be deemed satisfied in a comprehensive assessment. Taking into account the particular context of the transaction, reasonable discounts granted by the contractor in order to expedite cash recovery, as well as the cost considerations faced by financial institutions compelled to accept debt‑satisfaction in kind due to non‑performing loans, may warrant a more flexible interpretation of the equivalence of the debt‑satisfaction value, provided that the authenticity of the transaction has been duly established. Moreover, where financial institutions or construction entities accept large volumes of properties in satisfaction of debts, the overall management of such bulk real estate and the generation of income through leasing arrangements may both be factored into the determination of the nature of possession.

　　However, where the underlying claim lacks legitimate origin, or where, in cases involving multiple dispositions, the authenticity of prior‑party transactions and the reasonableness of consideration remain unclear, such matters must be scrutinized rigorously. A third party’s request to exclude enforcement based solely on a final, effective legal document in another case—issued after the real property subject to execution was seized—shall not be upheld. Where a third party conspicuously fabricates evidence of possession, such as hastily acquiring or artificially assembling traces of occupancy, or where the judgment debtor, fully aware of insolvency, nevertheless enters into a debt‑settlement agreement with a specific creditor and uses its principal assets to satisfy the debt, such conduct may reflect an intentional attempt to circumvent the provisions of this article; accordingly, a comprehensive review of all relevant facts is required, with particularly strict scrutiny.

　　Furthermore, the Interpretation on Actions for Objection to Enforcement introduces the principle of preserving the debtor’s liable assets into the adjudication procedure for such actions. In practice, it is essential to conduct a thorough tracing of the origin of the creditor’s claim and to penetrate the transaction chain, adhering to the principle of substantive review in order to rigorously prevent improper or fictitious transactions that diminish the debtor’s liable assets. For instance, where a judgment debtor uses its real estate to discharge a debt owed to an affiliated company without consideration—thereby unduly reducing its own liable assets and impairing the realization of its creditors’ claims—such conduct should, in principle, be rectified through the doctrine of avoidance. However, given that the legality of the debt‑settlement agreement falls within the scope of review in actions for objection to enforcement, and drawing on the framework of actions for permission and actions for revocation, the matter may be adjudicated concurrently, with the result that the third party’s objection seeking to exclude the enforcement proceedings will not be upheld.

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