[Jeon Daegyu's 7 Trials and 8 Failures] The Dilemma of Immunity for High Earners

Jeon Dae-gyu, Chief Judge of Seoul Bankruptcy Court

About two months ago, I was having a glass of soju with some acquaintances over samgyeopsal when I received a call from a junior lawyer from high school. The gist was this: his client is a doctor who applied for general rehabilitation (a rehabilitation procedure for individuals) at the court, but it was dismissed due to opposition from creditors. With no other options, the client filed for personal bankruptcy and was declared bankrupt. However, more than two years have passed without any decision on discharge, leaving the client stuck and unsure of what to do. He asked for advice.

In practice, individuals with high-income professions (such as doctors and lawyers) occasionally file for personal bankruptcy. It is rare for them to file for personal bankruptcy immediately; most first apply for general rehabilitation, and after it is dismissed due to creditor opposition, they then file for personal bankruptcy. Why does this happen? Let’s look at the case of doctors. Generally, when a doctor opens a practice, they need not only a space to operate the clinic but also expensive medical equipment. Typically, they acquire medical equipment worth hundreds of millions of won through leasing. If the clinic does not perform as expected after opening, problems arise. They may fail to pay the monthly lease fees properly and also be unable to pay their employees’ salaries.

A doctor facing financial difficulties applies for general rehabilitation at the court. Although there is a simple procedure called personal rehabilitation for individuals, doctors usually cannot use it because their debts are large due to high-cost medical equipment leases. To use the personal rehabilitation procedure, unsecured debts must be under 500 million won and secured debts under 1 billion won. Both conditions must be met simultaneously. General rehabilitation is a procedure where an individual repays debts over about 10 years from future income and has the remaining debts discharged. The problem is that for the rehabilitation plan, which divides repayment over 10 years, to be executed, the consent of a certain amount of creditors is required. This is called the approval requirement. Creditors include unsecured general creditors and secured creditors. To meet the approval requirement, at least two-thirds of unsecured creditors and three-fourths of secured creditors by debt amount must agree. However, creditors believe doctors will earn a lot of money and do not agree to a rehabilitation plan that reduces debts. As a result, the rehabilitation procedure is dismissed.

When the rehabilitation procedure is dismissed, the only option left for the doctor is personal bankruptcy. The problem is that when a doctor files for personal bankruptcy, the presiding judge hesitates to grant discharge. The reason is simple: if discharge is granted to a doctor expected to have high income, the existing debts are discharged, and future income becomes the doctor’s own earnings, raising questions about fairness. However, the judge cannot issue a denial of discharge either because the reasons for denial are stipulated in the Debtor Rehabilitation and Bankruptcy Act, and no specific grounds for denial are found. Consequently, the case is left unresolved. Ultimately, the harm falls entirely on the doctor who filed for personal bankruptcy. Since bankruptcy was declared, the doctor cannot practice, and without discharge, starting anew is difficult. Employment is impossible, and livelihood becomes bleak.

What should be done? When creditors do not agree in general rehabilitation and no other remedy exists, discharge should be considered. In 2003, when I was the senior judge in charge of personal bankruptcy at the Gwangju District Court, there was a case where a doctor with debts exceeding 4 billion won filed for personal bankruptcy. After much deliberation, discharge was granted. If the individual is sincere, discharge decisions should be made promptly to allow a fresh start. If full discharge is emotionally difficult, partial discharge can also be considered. Although there is debate about allowing partial discharge (personally, I do not favor partial discharge), rather than leaving the case unresolved with implicit rejection, a compromise approach granting discharge for some debts while requiring repayment of others may be a viable option.

There is no reason to hesitate to grant discharge without reasonable grounds just because the debtor is high-income or expected to have high income. While abuse of the discharge system must be prevented, it is necessary to operate the discharge system with a deep understanding of its purpose?to enable a swift fresh start. This is the very reason for the existence of the rehabilitation court. Jeon Dae-gyu, Chief Judge, Seoul Rehabilitation Court

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