[Jeon Daegyu's 7 Trials and 8 Failures] Roughly Built Houses Must Be Repaired Quickly

Jeon Dae-gyu, Chief Judge of Seoul Bankruptcy Court

Choi, who was running a small restaurant in Seocho-dong, Seoul, experienced a decline in sales this year due to the 52-hour workweek system, minimum wage increases, and the novel coronavirus disease (COVID-19). Ultimately, he visited the Seoul Bankruptcy Court last month to seek debt adjustment through the individual rehabilitation procedure. At that time, Choi's debts consisted solely of a 500 million KRW mortgage loan for housing and a 490 million KRW loan from a commercial bank for operating funds. If there were no other issues, Choi could receive a decision to commence the individual rehabilitation procedure from the court, have his repayment plan approved, and after faithfully repaying for three years, be discharged from the remaining debts. However, there is one problem. Depending on when the court decides to start (commence) the individual rehabilitation procedure for Choi, the procedure may proceed, or in some cases, the application to commence the procedure may be dismissed. At least, this was the case before the 9th of last month.

The individual rehabilitation procedure refers to a process for individual debtors who have debts below a certain amount and who either have facts causing bankruptcy or are at risk of such facts, and who have regular and certain income or are likely to have continuous or repetitive income in the future. They can repay the remaining amount after deducting necessary living expenses from their income over a maximum of three years in principle, and be discharged from the remaining debts. Only individuals with debts below a certain amount can use this procedure, where the total unsecured debt must be 500 million KRW or less, and secured debt 1 billion KRW or less. At the time of application, Choi met the total debt amount criteria.

Then, when is the reference point for judging the total debt limit? Before the amendment of the "Debtor Rehabilitation and Bankruptcy Act (Debtor Rehabilitation Act)" on the 9th, there was no clear provision regarding this. Therefore, in practice, the time of the decision to commence the individual rehabilitation procedure was used as the reference point for calculating the total debt amount. As a result, there were cases where the total debt amount was within the range prescribed by the Debtor Rehabilitation Act at the time of application, but after the application, due to interest or delayed damages, the total debt amount changed and exceeded the limit at the time of the decision to commence the procedure, causing the applicant to lose eligibility. Choi also had no problem meeting the total debt amount criteria at the time of application. However, depending on when the court decides to commence the individual rehabilitation procedure, eligibility may be lost. If the additional interest accrued before the decision to commence the procedure is 10 million KRW or less, the court can decide to commence the procedure, but if it exceeds 10 million KRW, eligibility is lost and the application must be dismissed.

The Debtor Rehabilitation Act stipulates that the decision to commence the individual rehabilitation procedure must be made within one month from the application date. However, in reality, due to an increase in cases and various circumstances, it is difficult to make the commencement decision within this period. As a result, the eligibility of the applicant is determined depending on when the court decides to commence the procedure, which grants excessive discretion to the court. From the applicant's perspective, it is difficult to know the exact timing of the court's decision to commence the individual rehabilitation procedure at the time of application. Therefore, I have continuously argued that to help individual debtors facing financial difficulties to recover, the reference point for calculating the total debt amount should be clearly defined as the time of application for the individual rehabilitation procedure. Since the 9th, this problem no longer occurs. The Debtor Rehabilitation Act was amended to clearly define the reference point for judging the total debt amount as the time of application for the individual rehabilitation procedure. This allows individuals who wish to apply for the procedure to secure predictability regarding whether the procedure will commence.

The individual rehabilitation procedure began on September 23, 2004. At that time, due to indiscriminate issuance of credit cards causing problems with credit delinquents, it was hastily introduced as a means to resolve this issue. It was, in fact, a roughly built house. As a result, various practical problems have arisen. Although improvements have been steadily made, there are still many parts that require revision. It needs to be promptly addressed.

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