1,000 People Filed for Bankruptcy Protection Last Year

More and more indebted individuals are filing for bankruptcy protection. Last year, the number of people who filed bankruptcy shot up sharply. In addition, more than 1,000 phone calls are pouring in to find out whether they are eligible for the Individual Walkout, a bailout program designed solely for individual debtors. If a person is found an eligible beneficiary of the system, the individual can avoid ruining his/her credit records and filing bankruptcy.

▽ Individual bankruptcy = The Supreme Court announced that as of last September, 794 individuals filed for bankruptcy protection, exceeding the total number of debtors who filed bankruptcy in 2001. Last year, especially, more and more people got insolvent upon their credit card payments. Therefore, if tallied later, the total number of people who filed for bankruptcy during 2002 would be likely to reach over 1,000.

The Bankruptcy Division of the Seoul District Court had watched bankruptcy seekers increasing day after day. For the entire year of 2001, 228 people filed for bankruptcy protection. In 2002, 506 people (or 82% increase) filed bankruptcy. In terms of the people who got exempted, the number also rose. In 2001, 113 people got exempted, while 192, or 70% increase, received the same benefit last year.

The court first allowed individuals to file bankruptcy in 1997. Ever since the introduction, the number of bankruptcy seekers has been making a sharp upward curve. For example, 350 people filed bankruptcy in 1998 and 503 in 1999. Only in 2000, the increasing trend had stopped with 329 seeking protection from the court.

On one hand, more and more people have become insolvent. On the other hand, people have become more aware of the benefit of the bankruptcy system, which exempts the debtors from the obligation of paying back to the creditors. That is why more and more people are filing bankruptcy.

Once the court, through bankruptcy procedures, finds a person bankrupt, the fact is recorded on every piece of his personal records in the government files. Therefore, the person will not be able to open a bank account and be disadvantaged in seeking employment. If, however, the person gets exempted after strict screening by the court, he or she will be able to start a new life.

▽ Individual Walkout = The Individual Walkout, which refers to the grace period given to debtors for recovery, was first introduced on November 1, 2002. Once the scope of the debt applicable under this system was widen to 300 million won (approximately $250,000) in last December, 500-600 phone calls began to pour in seeking help. Then, beginning this month, the number of calls has almost doubled.

Also on the rise is the number of people who file for protection under the Individual Walkout. During last November, only 94 people filed for the protection. As of December, 505 debtors did the same.

A couple of reasons explain the difference between the number of consulting phone calls and that of actual cases filed. First, most of the people who consult over the phone have no ability whatsoever to pay back. In addition, if loans from banks that do not sign up for the Walkout constitute more than 20% of the total debt of an individual, the person is not eligible for any benefits under the system.

One senior official in charge of the Individual Walkout said, "In the past, about 10 people on average filed for the protection. Now, the number has doubled. Considering the time necessary for preparing documentation, more people will file for the protection in the future."

Jin-Suk Huh Jin-Kyun Kil jameshuh@donga.com leon@donga.com