Individuals Unable to Repay Debt Due to COVID-19, Principal Repayment Deferred

[Asia Economy Reporter Kim Hyo-jin] Individual debtors facing the risk of being unable to repay their loans due to the novel coronavirus infection (COVID-19) can now receive a deferment of principal repayment for up to one year. This applies to individual debtors whose income has decreased due to COVID-19 and who have no capacity to repay their debts after deducting living expenses. Since receiving a deferment may lower credit scores or cause disadvantages in financial usage, it is necessary to carefully review the eligibility requirements and other conditions.

According to financial authorities on the 28th, the strengthened support measures for vulnerable individual debtors confirmed at the 4th Emergency Economic Meeting on the 8th will be implemented across all financial sectors starting from the 29th of this month. These measures are divided into two categories: individual financial institutions' household loan pre-workout programs and debt adjustment by the Credit Counseling and Recovery Service (CCRS).

Debtors using low-income financial loans such as Saemaul Loans (햇살론) can apply for deferment directly to the financial institution from which they borrowed, rather than to the guarantee institution or CCRS. For loans other than low-income financial loans, if there is only one creditor financial institution requiring deferment, the debtor can apply to that institution; if there are two or more, the application can be submitted simultaneously to CCRS.

Individual financial institutions’ deferment is available to debtors whose income has decreased since February due to unemployment, unpaid leave, loss of work, etc., and whose income after deducting living expenses (75% of the median income standard) is less than their monthly debt repayment amount. The living expense standards are KRW 1.32 million for a single-person household, KRW 2.24 million for two persons, KRW 2.9 million for three persons, and KRW 3.56 million for four persons. For example, in a three-person household, if the current income reduced by the impact of COVID-19 minus KRW 2.9 million is less than the monthly debt repayment amount, the debtor can receive deferment.

The debtor must prove the income reduction. For debtors whose income reduction is difficult to prove, such as daily workers, a 'Statement of Income Reduction' can be submitted instead. Eligible loans include unsecured credit loans and guaranteed low-income financial loans (Saemaul Loans and Sae-itdol Loans), and applications can only be made if less than one month remains until the principal repayment due date. Upon passing the review, principal repayment can be deferred for 6 to 12 months.

Debt adjustment by CCRS targets debtors who have difficulty repaying loans due to COVID-19 damage and whose net assets are less than their total debt. They can apply for principal repayment deferment (6 to 12 months) on unsecured credit loans. Long-term delinquent debtors with arrears of three months or more may also receive principal and interest reduction benefits ranging from 10% to 70% of the debt principal.

Applications for deferment can be submitted from the 29th of this month until December 31. Due to system processing issues, internet banks such as Korea Kakao Bank (KakaoBank) and K Bank will accept applications starting from the 7th of next month.

Receiving deferment without careful consideration may lead to difficult situations. It is important to note that interest must still be paid as usual, and there is no interest reduction. If a debtor who has received deferment later delays repayment by more than five business days, delinquency information will remain for three years, and new loans and credit card usage will be suspended.

If it is discovered that the debtor provided false information regarding income level or other related requirements at the time of application, not only will the support measures be canceled, but the debtor may also be registered as a financial disorder offender, leaving a record for seven years and facing sanctions from financial institutions.

Even if an application for deferment is made, support may be denied if it is judged that the debtor can repay independently or that repayment of the principal will be difficult after the deferment period ends.

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