Supreme Court: "Even with a Confirmed Judgment on Claims Against Bankruptcy Dischargees, Enforcement Is Not Allowed"

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] A ruling has been made that even if a debtor who has received a discharge decision through a bankruptcy application files a lawsuit based on an existing claim and obtains a final judgment, enforcement is not permitted.

Originally, objections to enforcement requests are only possible for reasons arising after the conclusion of the substantive trial, but in the case of a discharge decision, which is unrelated to res judicata, enforcement can be prevented for reasons that occurred before the lawsuit, according to the ruling.

On the 22nd, the Supreme Court's 3rd Division (Presiding Justice Kim Jae-hyung) overturned the lower court's ruling that dismissed the plaintiff's appeal in the final appeal of the objection to the claim filed by Mr. A against Mr. B, and remanded the case to the Seoul Southern District Court.

The court stated, "The lower court's ruling contained errors that affected the judgment by misunderstanding the legal principles regarding res judicata and the grounds for objection in the objection lawsuit."

Mr. A lost a loan claim lawsuit filed by Mr. B's father in 2006 and was ordered to repay 5 million won plus accrued interest.

Unable to repay the debt, Mr. A received a discharge decision due to bankruptcy in December 2011. Although the discharge decision does not eliminate or reduce the debt itself, it limits the debtor's responsibility, meaning the debtor is only liable within the scope of the assets they had at the time of the bankruptcy declaration.

However, in March 2014, Mr. B claimed that he had acquired the claim against Mr. A from his father and filed a claim lawsuit against Mr. A to extend the statute of limitations. Since Mr. A was not served a copy of the complaint, the court proceeded with public service, and without Mr. A's participation in the trial, Mr. B's victory was confirmed in January 2015.

When Mr. B attempted enforcement based on this final judgment, Mr. A filed an objection lawsuit against Mr. B, arguing that the claim Mr. B's father had against him was discharged by the bankruptcy decision.

The first and second trials did not accept Mr. A's claim.

Due to the res judicata effect of the final judgment, objections to enforcement based on the final judgment can only be made for reasons arising after the conclusion of the substantive trial, and Mr. A's discharge decision was considered a reason that occurred before the conclusion of the substantive trial in the lawsuit filed by Mr. B.

However, the Supreme Court's judgment was different.

The court first referred to Article 566 (Effect of Discharge) of the Debtor Rehabilitation and Bankruptcy Act, which states that "a debtor who has been discharged is exempt from all liabilities to bankruptcy creditors except for distributions under bankruptcy proceedings," and cited a past Supreme Court ruling that "discharge means that the debt itself remains but enforcement against the individual debtor cannot be compelled."

The court stated, "Even if a discharge decision for an individual debtor is finalized, and a judgment ordering the performance of the discharged debt is rendered and finalized because the bankruptcy creditor did not assert the discharge fact until the conclusion of the substantive trial in the lawsuit filed by the creditor, the individual debtor may, barring special circumstances, file an objection lawsuit afterward by asserting the discharge fact."

Furthermore, the court added, "If a discharge decision is finalized but a judgment ordering the performance of the discharged debt is also finalized, it would lead to an unjust result to exclude the enforceability of the final judgment on the discharged debt through an objection lawsuit solely because the individual debtor did not assert the discharge in the lawsuit concerning the final judgment. Forcing an individual debtor, who has already been freed from enforcement risk through the discharge decision, to endure enforcement again contradicts the purpose of the discharge system and may result in evading the effect of the finalized discharge decision."

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