Debtors Abusing Personal Bankruptcy Protection

A Busan resident changed his home address to the Seoul metropolitan area after hearing that he can get exempt from repaying 300 million won (260,000 U.S. dollars) in debts to financial institutions if he files for personal bankruptcy protection.

He listened to his attorney’s advice to move to the Seoul metropolitan area, since courts in the Busan area take longer to process bankruptcies and are stricter in approval.

A court in Seoul approved his bankruptcy filing, exempting him from repaying his debt. Around 10 of his acquaintances also used the same method to avoid repaying debt.

More people are changing their home addresses to regions where courts generally accept bankruptcy filings. The reason is that courts differ significantly in the degree to which they accept such filings.

Bankruptcy protection is designed to protect the working class who cannot afford to repay debts owed to financial institutions, but the system is being abused by not-so-poor debtors to avoid their financial obligations.

Rep. Park Min-shik of the ruling Grand National Party yesterday announced the results of an analysis on personal bankruptcy filings nationwide at the parliamentary legislation and judiciary committee yesterday.

The analysis found that 415,000 of 431,800 bankruptcy filings were approved from 2005 to June this year across the nation, or an approval rate of 96.1 percent.

This suggests most debtors do not have to repay their debts if they choose to file for bankruptcy.

Notably, the bankruptcy department of the Changwon District Court in South Gyeongsang Province approved 13,587 of 13,823 bankruptcy cases processed over the four-year period for an approval rate of 98.3 percent.

Ten of 12 district courts nationwide had approval rates of more than 90 percent, with those in Seoul, Chuncheon, Cheongju and Suwon recording 97 percent, and those in Uijeongbu and Jeonju 96 percent.

In comparison, Busan had a rate of 88.9 percent and Ulsan 87.5 percent, or about 10 percentage points lower than in other districts.

There are 30 bankruptcy departments at courts nationwide responsible for personal bankruptcy filings numbering more than 100,000 cases per year. Just 26 judges handle such cases, however.

This means that a judge handles 1,851 cases on average per year, meaning he or she must process five cases per day throughout the year.

needjung@donga.com