Over 20,000 Bankruptcies Filed This Year

For the first time, more than 20,000 people have filed for personal bankruptcy in a year’s time. In addition, over half of the households in the bottom 30 percent according to income are in the red.

As the household loan interest rate continues to rise, households are expected to face greater burdens. According to the Ministry of Finance and Economy on November 16, the number of filings for personal bankruptcy reached 23,756 from January through September of this year, which is far higher than 12,317, the total number of cases last year.

The number of applications for personal bankruptcy is soaring every year, with 673 in 2001, 1,335 in 2002 and 3,856 in 2003.

The National Statistical Office (NSO) found that by the standard of income in the third quarter (July to September), 50.7 percent of the households in the bottom 30 percent were in the red. The third quarter figure is a 1.2 percent increase than that of the second quarter (April to June), 49.5 percent.

It’s forecasted that as the households in the red are forced into debt, low-income households will bear a much heavier burden because of the rising interest rates. According to the Bank of Korea (BOK), the size of household debt is also growing.

The average interest rate of money loaned by financial institutions in September was 5.61 percent, a 0.09 percent increase from the previous month. After the BOK raised the call rate, interest rates increased more quickly as well.

Kim Gyung-won, a managing director of the Samsung Economic Research Institute (SERI), noted, “The increase in the number of those filing for personal bankruptcy means that there are many households that reached a critical situation,” and expressed concern, “More people could file for bankruptcy if the burden of debt redemption grows heavier on the low-income households in the red.”

Joong-Hyun Park sanjuck@donga.com