Repayment Deferral Before Debt Adjustment Initiation Possible for Reasons Other Than 'Due to COVID-19'

Amendment to Credit Recovery Support Agreement to be Implemented in November

[Asia Economy Reporter Kim Hyo-jin] General debtors who face difficulties in debt repayment for reasons other than COVID-19-related damages, such as unemployment, can now receive repayment deferral before the start of debt adjustment.

The special debt adjustment support age for unemployed youth has also been expanded from under 30 to under 34 years old.

On the 18th, the Financial Services Commission announced the "Credit Recovery Support System Improvement Plan" containing these measures to provide rapid rehabilitation support for vulnerable debtors.

The Credit Recovery Committee currently supports COVID-19 victims by allowing those who have difficulty repaying debts due to temporary income reduction caused by COVID-19 to defer repayment for up to one year before debt adjustment (installment repayment).

The financial authorities have decided to expand the support target to general debtors who can prove a temporary decrease in debt repayment ability due to reasons other than COVID-19, such as unemployment or business closure, to more broadly support the rapid rehabilitation of vulnerable debtors. Repayment deferral is possible for up to one year regardless of the delinquency period.

Currently, debtors with temporary income reduction and insufficient disposable income cannot undergo debt adjustment, limiting rapid rehabilitation support, according to the financial authorities' assessment.

The financial authorities also plan to improve the system so that creditor financial institutions do not refuse maturity extensions or cause loss of benefit of term on debts not subject to debt adjustment solely because of a debt adjustment application.

This measure applies only to debtors who are repaying debts not subject to debt adjustment normally. If there are reasons stipulated in the basic credit transaction terms and conditions, such as delinquency occurrence, the benefit of term will be lost as before.

Additionally, the financial authorities will improve the system so that when debt adjustment is confirmed, creditor financial institutions release seizures upon the debtor's application if the total deposit amount is within the scope of seizure-prohibited deposits.

Accordingly, debtors whose debt adjustment is confirmed can obtain a certificate of deposit balance and apply for seizure release. The financial institution will release the seizure through the court upon receiving a fee from the debtor.

At the same time, the financial authorities will expand the special debt adjustment target for university students who have been delinquent on financial debts for more than three months and unemployed youth under 30 to those under 34 years old. The repayment deferral period for the unemployed will be extended from up to 4 years to 5 years. Deferred interest will be waived.

The special discharge for vulnerable debtors supported among livelihood and medical benefit recipients and severely disabled persons receiving disability pensions will be expanded to all basic livelihood security recipients and severely disabled persons.

The reapplication restriction period for personal workouts will be shortened from "6 months after expiration" to "3 months after expiration," and the reduction rate for interest claims with principal repayment completed will be increased from 80% to 90%.

For users of rapid debt adjustment with delinquency of 30 days or less, the interest rate during the deferral period before installment repayment will be capped at 15%, and incentives such as interest rate reduction and deferral period extension will be provided to those who repay faithfully.

The scope of non-face-to-face application for convenience in using debt adjustment will also be expanded. Among them, a simplified rapid support procedure will be prepared for low-income groups (below 75% of median income).

The financial authorities plan to announce the "Credit Recovery Support Agreement Amendment" containing these measures, gather opinions from stakeholders, and implement it next month.

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