[Jeon Daegyu's 7 Wins 8 Losses] Why the Head of Household with 100 Million Debt Was Discharged

Jeon Dae-gyu, Chief Judge of Seoul Bankruptcy Court

One of the frequently asked questions in practice is what happens if a person undergoing the individual rehabilitation procedure fails to make repayments properly. In life, one may unexpectedly lose their job or suffer from a serious illness. In such cases, the originally planned repayments cannot be carried out as intended. Does this mean discharge is not possible? Is there no remedy in such situations? The conclusion is that even if repayments are not made properly, discharge can still be granted.

Mr. Choi Ki-young (a pseudonym) overcame the difficult employment winter after graduating from university and started an ordinary working life. Since his family was not well-off, Mr. Choi had no choice but to take out student loans while attending university. Receiving loans for four years, the total debt reached 30 million won. His salary at work was about 3 million won. After working for about two years, he got married and had one child. However, due to marriage and childbirth, his debt increased to 100 million won. The burden of loan interest and child-rearing expenses troubled the couple, and it became difficult to manage on a single income.

After much deliberation, Mr. Choi visited the Seoul Rehabilitation Court to apply for the individual rehabilitation procedure. The individual rehabilitation procedure is a system where an individual with continuous and steady income repays part of their debt over three years, and the remaining debt is discharged. The funds for repayment over three years come from the disposable income, which is the income (salary) minus living expenses. Considering two dependents and housing costs, Mr. Choi was recognized to have 2 million won as living expenses. Therefore, he calculated his disposable income as 1 million won and prepared a repayment plan for three years, which he submitted to the court. The court approved Mr. Choi’s repayment plan. He made repayments according to the plan without issue in the first year. However, in the second year, with the birth of another child, he began to struggle with repayments. Consequently, he failed to properly fulfill the repayment plan and faced another difficulty. In principle, if repayments according to the plan are not properly made, the ongoing individual rehabilitation procedure is terminated, and the debtor must repay all original debts. What should Mr. Choi do? And what should the court do?

There are two types of discharge in the individual rehabilitation procedure. One is the general discharge, which is granted mandatorily when the individual completes repayments according to the plan. In Mr. Choi’s case, since he did not complete repayments as planned, discharge by this method is impossible. The other is special discharge, which the court may grant at its discretion when unforeseen circumstances such as job loss occur during the repayment period, making it impossible to fulfill the repayment plan.

For the court to grant special discharge, three conditions must be met. First, the individual must fail to complete repayments due to reasons beyond their responsibility. Second, the amount repaid to creditors by the time the court decides on discharge must be greater than what would have been received if bankruptcy had been declared. Third, modification of the repayment plan must be impossible. In Mr. Choi’s case, the first condition is met because the failure to repay was due to an accidental circumstance?the birth of a child causing increased living expenses. When Mr. Choi revisited the court, the calculation of repaid amounts showed that the second condition was also met. Regarding whether the repayment plan could be modified, considering the increased living expenses due to childbirth, it was highly likely that disposable income would become negative. Therefore, the third condition was also judged to be met. The Seoul Rehabilitation Court ultimately granted Mr. Choi immediate discharge.

Some applicants or their representatives mistakenly believe that if the individual rehabilitation procedure is terminated, they must repay all original debts unconditionally and cannot receive discharge. However, if an individual fails to make proper repayments due to reasons beyond their responsibility (such as job loss, retirement, childbirth) while repaying according to the plan, the court may grant discharge ex officio in certain cases. In this respect, the discharge system functions as a social safety net. If Mr. Choi had not received discharge from the court, his family would have been in jeopardy. By granting immediate discharge to Mr. Choi, the court opened a path for a family to be freed from debt and live a happy life.

This content was produced with the assistance of AI translation services.