Number of Bankruptcy Filings Growing

It was discovered that over 40,000 default people last year chose to file for bankruptcy because of their inability to repay debt.

Recently, the number of debtors who try to repay debts through registering for recovery of credit have decreased, but debtors who use the individual insolvency policy to give up on payment altogether are on the rise, raising concern by some of collective moral hazard.

On May 14, according to the Bank of Korea, the Supreme Court, and the Credit Counseling and Recovery Service, the applications for bankruptcy registered at the Court last year totaled 38,773, a 3.2 increase from the 12,317 applications in 2004.

The number of individual bankruptcies is increasing every year, with 329 in 2000, 672 in 2001, 1,335 in 2002, and 3,856 in 2003.

The credit card fiasco in 2003 and the stagnant economy since 2004 have made an increasing number of defaults, and the generous attitude of the Court has contributed to this phenomenon.

The default policy was incorporated in January 1962 with the bankruptcy law, but the actual introduction of the system was in March 1997.

When a default is declared, the individual clears his remaining assets and is legally free of any responsibility to repay the debt.

In the past, people have avoided default because it was dishonorable and the Court had imposed strict limitations, but nowadays people are flocking in line and the Court has become lenient.

Meanwhile, people who negotiate with finance companies to repay their debt as soon as possible are diminishing.

The credit recovery applications last year at the Credit Counseling and Recovery Service were 193,698, a 32.6 percent shrinkage compared to 287,352 applications from the prior year.

Suk-Min Hong smhong@donga.com