[Jeondaegyu's 7 Jeon 8 Gi] The Effect of Discharge on Previously Approved Dischargeable Debt

Mr. A lent 100 million KRW to Mr. B around May 2017. Around March 2018, Mr. B filed a petition for the commencement of individual rehabilitation proceedings at the Seoul Rehabilitation Court and received a decision to commence the individual rehabilitation proceedings. Subsequently, around July 2018, he obtained approval for a repayment plan concerning the repayment of debts including the loan debt under the individual rehabilitation. The repayment rate was 20% of the principal. While performing the repayment plan, around April 2019, Mr. B drafted a “Memorandum of Performance” promising to repay 80 million KRW of the loan debt to Mr. A (hereinafter referred to as the “Reapproved Debt”). After completing the repayment plan, Mr. B received a discharge decision from the Seoul Rehabilitation Court around August 2021.

After the repayment plan approval decision was finalized and while performing the repayment plan, Mr. B drafted a memorandum separately promising to repay the individual rehabilitation debt to creditor Mr. A. Can Mr. A demand payment based on this? This issue is directly related to whether the discharge decision’s effect extends to debts that the debtor expressed an intention to repay separately from the repayment plan before the discharge decision was finalized.

A debtor who has been discharged is exempt from liability for debts to individual rehabilitation creditors except for those repaid according to the repayment plan. Here, discharge means that the debt itself remains but enforcement against the debtor cannot be compelled. Therefore, discharged claims lose the right to file a lawsuit that ordinary claims possess. Mr. A’s loan claim against Mr. B is a claim that arose before the commencement of the individual rehabilitation proceedings and is an individual rehabilitation claim. Therefore, with the finalization of the discharge decision, Mr. B’s liability for the remaining loan debt after repayment according to the repayment plan is exempted, and Mr. A cannot file a lawsuit seeking payment of the remaining loan debt.

The question is what happens to the Reapproved Debt under the memorandum, separate from the loan claim. Since the Reapproved Debt arose after the decision to commence the individual rehabilitation proceedings, there is room to argue that it is not subject to discharge by the discharge decision. However, from a substantive perspective, it is no different from the original loan debt and retains its nature. From this viewpoint, it can be seen as subject to the effect of the discharge decision.

The purpose of the discharge system for debtors in individual rehabilitation proceedings is to ensure fair repayment to creditors while granting debtors who are insolvent or at risk of insolvency an opportunity for economic recovery and rehabilitation. Through this, debtors can make efforts toward economic recovery without being pressured or discouraged by individual rehabilitation debts.

If a debtor expresses an intention to repay individual rehabilitation debts separately from the repayment plan to individual rehabilitation creditors after the commencement of the individual rehabilitation proceedings but before the discharge decision is finalized, and if it is considered that the debtor’s responsibility to perform all or part of the individual rehabilitation debts continues even after the discharge decision is finalized, this would contradict the purpose of the discharge system. The Reapproved Debt that Mr. B undertook through the earlier “Memorandum of Performance” was intended as partial repayment of the loan debt, an individual rehabilitation debt, separate from the repayment plan. It is difficult to regard the Reapproved Debt as a completely new and separate debt with no substantial identity to the individual rehabilitation debt. The effect of the discharge decision applies not only to the original loan debt but also to the Reapproved Debt. Ultimately, Mr. A cannot file a lawsuit against Mr. B seeking performance of the already discharged Reapproved Debt.

Jeon Dae-gyu, Chief Judge, Seoul Rehabilitation Court

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