Job Losses and Business Closures Surge... Over 30,000 Individuals and Pre-Workout Applicants in Q1

Shinbokwi Supports 30,325 Debt Adjustments
5.2% Increase from Last Year's Q4
Rapid Debt Adjustments Surge 26%

[Asia Economy Reporter Kim Min-young] Due to the impact of the novel coronavirus infection (COVID-19), the number of ordinary citizens using the debt adjustment system because they could not repay their debts exceeded 30,000 in the first quarter of this year. This is due to the rapid economic downturn caused by COVID-19, which led to a series of business closures and job losses, causing debtors unable to bear interest and other payments to flock for debt relief.

According to the Credit Recovery Committee on the 13th, the total number of debt adjustment cases supported by the committee in the first quarter of this year was 30,325. This represents a 23.3% increase over four years compared to the first quarter of 2016 (24,590 cases). It also increased by about 5% compared to the previous quarter, the fourth quarter of last year (28,897 cases).

By type, individual workouts targeting debtors who have been overdue for more than 90 days amounted to 23,182 cases in the first quarter of this year. This is a 12.4% increase from 20,624 cases in the first quarter of 2016 and a 5.2% increase compared to 22,023 cases in the fourth quarter of last year.

Individual workouts apply to debtors whose total debt is 1.5 billion KRW or less (secured debt 1 billion KRW or less, unsecured debt 500 million KRW or less) and who have been overdue on debts to creditor financial institutions for more than three months. If the Credit Recovery Committee’s review board recognizes that the debtor has income above the minimum living expenses and can repay the debt, debt adjustment can be granted.

Pre-workouts, which adjust interest rates for debtors overdue between 30 and 90 days, saw 5,968 cases supported in the first quarter of this year. This is a sharp increase of 50.4% compared to 3,966 cases in the first quarter of 2016. It also rose about 4% compared to 5,942 cases in the previous quarter. Pre-workouts can be applied for only if the applicant’s assets are 1 billion KRW or less.

What is more notable is the rapid increase in expedited debt adjustments. Expedited debt adjustments were carried out 1,175 times in the first quarter of this year, up 26% from 932 cases in the fourth quarter of last year, and surged 382.3% compared to the third quarter of last year when the system was introduced.

Expedited debt adjustment is a system where individual debtors who are overdue for 30 days or less, or who have not yet started overdue but are likely unable to repay, apply for debt adjustment. During the spread of COVID-19, the number of cases increased from 354 in January, 337 in February, to 484 in March this year.

The Credit Recovery Committee stated, “People facing overdue risks due to short-term job loss and business closures caused by COVID-19 are using this system.” It seems that the effect of the financial authorities’ introduction of rapid support programs for those at risk of overdue, such as six-month emergency repayment deferrals and 10-year installment repayments as part of COVID-19 financial support, has also helped raise awareness of this system.

The future is even more problematic. For ordinary citizens, debt adjustment is a “last resort” taken when they can no longer bear the burden of debt, and it is obvious that the difficulties of the ordinary economy will peak from the second half of the year due to COVID-19. In 2016, 73.5% of individual workout applicants had a monthly income of 1.5 million KRW or less. A Credit Recovery Committee official said, “Debtors knock on the committee’s door after breaking insurance or savings deposits, then using card loans or borrowing money from savings banks or loan companies and failing to repay.” He expressed concern that “applications for debt adjustment due to the impact of COVID-19 may surge further in the second half of this year or next year.”

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