[Op-Ed] Abuse of Personal Bankruptcy Laws

In the United States, lawyers who follow accident victims and encourage them to sue are called “ambulance chasers.” Most of their counterparts in Korea wait for clients to visit their offices, but more are soliciting clients proactively. Some have even drawn criticism for recruiting clients who wanted to file a class-action suit on the Internet. Banners have surfaced with phrases such as “free from debt,” “bailout” and “ban on calling up debt” at farming and fishing villages posted by judicial notaries or bankruptcy brokers.

The government introduced a credit recovery system including a personal debt workout designed to adjust debt in advance to provide support for helpless debtors. The intended targets of the assistance are small business owners who borrow money for their livelihoods but face difficulty paying interest as well as principal; farmers and fishermen unable to get loans or who borrow from loan sharks who impose a whopping interest of 40 percent; and unemployed youths who must repay school loans. Those in debt, however, are told by bankruptcy brokers that their debts can be completely written off if they file for bankruptcy. This offer is tempting indeed.

Last year, 94.4 percent of 144,137 personal bankruptcy filings were granted. If declaring bankruptcy gets easier, more people will file for it to apply for credit recovery. Efforts by bankruptcy brokers to encourage people to file for bankruptcy have bore fruit. The number of those filing for bankruptcy jumped from 12,317 in 2004 to 118,643 last year and to 74,942 in the first eight months this year.

The personal bankruptcy system can be a life-saving measure for debtors, but can also inflict serious damage on innocent creditors or provincial and municipal economies. If financial companies collapse and banks suffering from damage raise interest rates, people who faithfully repay their debts will become victims. If moral hazard of debtors spreads and creditors are unwilling to lend money, provincial and municipal economies will greatly suffer. The personal bankruptcy system should be improved to prevent abuse. Requiring debtors to consult with experts before filing for personal bankruptcy is a step in the right direction.

Editorial Writer Park Yeong-kyun (parkyk@donga.com)