“Mr. Hwang (41) earns his livelihood by doing manual labor. Until 15 years ago, he was a CEO of a small- and medium-sized business. However, he stood joint surety for a loan and he forfeited all his assets due to his default. He has tried to gain his feet but delinquent credit record blocked his effort.”
In 1997, there the Asian financial crisis broke out. Although 10 years have passed and the crisis is over, it has left a deep wound in our society. Especially, as I mentioned above, heavy debts due to joint sureties from business bankruptcy during the Asian financial crisis are still posing difficulties to many people to return to normal economic activities. So, the government decided to bail out those individuals and give them a second chance. Of course, there are some complaints that why creditors during the Asian financial crisis are the only subject of the government’s bail-out program. The Asian financial crisis however, was a national level disaster and it resulted in numerous insolvent enterprises and consequent debtors from joint sureties.
Then, who are the recipients of the support and how will the government support them? In large, the debtors involved in joint sureties for bankrupt SMEs from 1997 to 2001 are the subject of the government’s debt write-off program. It is also divided in two types. The first type is 1,104 debtors whose delinquent credit record has not been removed. It includes 528 of people whose delinquent credit record remains on the court’s list of defaulter and 576 of debtors who are registered as a person responsible for bankruptcy on dishonored bill. Also, 113,830 borrowers who have not yet repaid debts from joint sureties will be recipients of this program.
All delinquent credit records by the request of creditor or court decision are supposed to be registered and kept for 7 years as public information on the Korean Federation of Banks (KFB). These records will be deleted by the write-off program. Also, outstanding debts from joint sureties will be rescheduled. Subject to debtors with combined debt of less than 1 billion KRW and 40~70% of principal will be written-off. Rest of the debt can be repaid in installments for maximum 10 years. If the amount of debt, however, is superabundant the government will set debt limit separately. Korea Asset Management Corporation (KAMCO) will purchase debts from financial institutions for debt restructuring.
This write-off program will be a foothold for the people who suffer from invisible social hindrance to restart their life. By extension, there is another global financial crisis in 2008 and it had also great effect on our society. If the government expands the write-off program and if debtors from 2008 crisis could also benefit from such debt write-off program, it would be an efficient way of minimizing the social cost and strengthen national financial capability.