Rescheduling Program Comes Amid Rising Household Debt Crisis


By Na Jeong-ju
Staff Reporter

The Supreme Court will introduce a rescue program for individual defaulters with debts of less than 1.5 billion won on Sept. 23 to help overcome their financial woes.

The court on Tuesday announced that 32 departments will be established at 13 district courts nationwide to take charge of the program, under which defaulters must pay their debts in installments for three to eight years to get their name taken off the credit delinquency blacklist.

It is the first time that a court has prepared a comprehensive and nationwide program for credit defaulters of such a huge sum. The measures are designed to cope with the rising household debt crisis as the number of credit delinquents recently surged to 3.7 million amid the sluggish economy.

``The credit problems of individuals has caused an increase in overdue and bad loans at credit card firms and commercial banks, thus worsening the financial health of the national economy,’’ Supreme Court spokesman Sohn Ji-ho said. ``The court’s program will be implemented along with other separate programs being initiated by the government and financial institutions for individual debtors to fight the credit crisis.’’

According to the Supreme Court, the new program targets a wider range of credit defaulters. Court officials said individuals who have jobs or run their own business can apply for the program.

Individuals must visit a court in person and consult court officials to set up a repayment schedule. If the court approves the schedule, the individuals must pay a certain amount of money every month on an installment basis.

The ceiling of the debt eligible for the rescue program is set at 1.5 billion won, while the debt should neither exceed 1 billion won in collateralized credit nor 500 million won in unsecured credit.

The length of the repayment period and how much applicants should pay per month will depend on their credit level and financial ability, the court said. In a regular situation, an individual should set aside all monthly income for debt repayment, except for minimum living costs and payments for taxes, national pension and health insurance.

However, the length of the debt repayment period will not exceed eight years with a fixed minimum period of three years.

If the rescue program is completed successfully as scheduled within the 8-year period, the defaulters will be able to recover their credit and the remaining debts will be exempted.

In May, the government set up the ``Bad Bank,’’ which acts as an agent for the collection of overdue loans at financial services companies by requiring debtors to abide by repayment schedules. Under the program, the state-run institution takes over bad credits held by financial companies and implements a workout program for individuals with debts no more than 50 million won. The debtors will be removed from the list of credit delinquents as soon as they pay only 3-10 percent of their debts and make free transactions with banks.

The Credit Counseling and Recovery Service, which was set up in 2002 by an association of financial companies, is also running a separate program to rescue credit defaulters earning a certain income level. This program is for individuals owing no more than 300 million won at more than two financial service firms.

The new debt rescue program is quite different from the present individual debt workout programs since it is administered by the court.

Some bank officials expressed fears that the new scheme might cause a moral hazard as it is designed to help debtors become exempt from repaying huge debts.

They also raised a question over why the Supreme Court allowed debts from private moneylenders to be eligible for the rescue program.

However, members of civic groups advocating rights of credit defaulters criticized that the soon-to-be-implemented program is too harsh for debtors because they will have to exist on minimum living costs for up to eight years.

jj@koreatimes.co.kr