According to ECON 101, economic recession tend to have a sequential time lag for each market participants. Consumers as an individual stand on the last line. Theoretically speaking, ailing major economic indicators affect overall national figures, GDP, GNP etc. and companies is the next. In months apart, consumers feel a pinch on their income and spending. Besides the fresh expectation and policy support from new government, escalating personal debt and insolvency becomes a serious problem to be solved.
The recent survey by BOK(Bank of Korea) announced 5 key systemic risks of Korean economy. The consensus concluded that personal debt problem is the biggest risk among risks.
The Study went on to say that personal debt and falling housing price might affect the financial system more severe than other risk factors because it is directly related to one of key component of economy, consumer. As of the end of last year, personal debt had increased up to 959 trillion won without losing its steam for years. As debt pile up, interest payment also unbearably keeps increasing. According to the latest statistics, the interest payment ratio of personal income broke its new record up to 2.34%. Considering the fact that we live in unusually low interest rate era, this consistently upward trend of interest payment represent that absolute amount of personal debt kept increasing no matter what.
The figure usually measured by the interest payment with regard to only housing purchase and small business operation. So the actual amount of interest payment should be higher than current figure. Those who could not bear their debt end up filing personal insolvency and apply the turnaround program. Evidently the number of application significantly has increased. According to the court, the number of personal turnaround application shot up by over 5,000 compared to the previous year.
(Source: Seoul Central District Court)
There are three ways to apply for personal turnaround program run by government: personal workout, personal turnaround, and personal insolvency. Personal workout distinguishes itself from the others since the program initiated by CCRS(Credit Consulting & Recovery Services) while others by the court. Generally personal workout is relatively convenient and less severe to debtors if the debt amount is less than 300 million won.
Personal debtor should cautious choose the most suitable program based on his/her own situation. Of course, it is absolutely necessary for government to curve severe volatility of personal debt program as well.