The Personal Rehabilitation System: A Lifeline for Debtors, Know It and Use It Wisely
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As the economic downturn continues, the position of small business owners and self-employed individuals is rapidly deteriorating. With sluggish consumer spending, high interest rates, and rising prices hitting hardest, coupled with the conclusion of COVID-19 support policies, many small business owners and self-employed individuals are struggling to repay their debts. In fact, the amount of overdue loans for small business owners and self-employed individuals is quickly increasing. According to data submitted by the Bank of Korea to the National Assembly, by the end of the first quarter of this year, the overdue business loans (more than 1 month overdue) of self-employed individuals totaled 10.8 trillion KRW, the highest figure since the Bank of Korea began tracking this data in 2009.
As the number of self-employed individuals and small business owners facing debt burdens increases, so does the reliance on the personal rehabilitation system. Last year, personal rehabilitation cases in the Daegu-Gyeongbuk region increased by 30.3% compared to the previous year, and from February to May this year, an average of 930 new cases were filed each month.
The personal rehabilitation system is designed for individuals with a stable income to pay off part of their debt over 3-5 years, while the remaining debt is forgiven. It consolidates debts from financial institutions as well as personal debts, offering a 90% reduction on principal and full forgiveness of interest. However, personal rehabilitation is only available for those with debts of up to 10 billion KRW in unsecured debt or up to 15 billion KRW in secured debt. Despite this, it is often seen as more advantageous than personal bankruptcy in both economic and social terms, making many people opt for this system.
What Makes Personal Rehabilitation More Beneficial than Personal Bankruptcy?
In a personal bankruptcy process, all assets must be liquidated to repay debts. However, under personal rehabilitation, personal assets are preserved. Additionally, individuals with certain occupations, such as public servants or corporate directors, can retain their positions. There are also no issues with the issuance of new bank accounts or debit cards, which benefits financial transactions. The personal rehabilitation system is available regardless of the cause of the debt, including gambling or reckless spending, making it possible to repay debts.
The Challenges of the Increasing Number of Applications
However, with the number of personal rehabilitation applications at an all-time high, the court's review process has become more stringent, so caution is needed. Personal rehabilitation is not automatically granted upon application. The court will assess the debtor's willingness and ability to repay before proceeding. Therefore, if the court is not convinced, the opportunity for rehabilitation may be denied.
How to Properly Utilize the Personal Rehabilitation System
To properly utilize the personal rehabilitation system, it is essential to fully understand the complex procedures and prepare the required documents on time to avoid wasting valuable time. Since a certain amount of debt must be repaid each month, careful consideration is needed to determine how much repayment is acceptable to the court while not causing excessive hardship in daily life. If creditors’ collection activities are causing difficulties, it is also important to use tools such as the prohibition of forced execution orders.
A Lifeline or a Burden?
The personal rehabilitation system in Daegu can be a sturdy lifeline for debtors if used properly, but if misused, it can become an ineffective tool. If navigating this process alone is difficult, seeking assistance from a lawyer with experience in personal rehabilitation can help ensure the procedure is carried out quickly and accurately.
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