By Choi Kyong-ae
Staff Reporter


The number newly filed bankruptcy cases reached an all-time high of 13,931 in the first six months to June as low-income earners suffer from poor job conditions and sluggish wage growth.

The half-year figure is higher than the full-year record number of 12,317 in 2004. Low-income households failed to service their debts amid a prolonged economic slump and financial firms’ reluctance to lend to them, financial sources said Wednesday.

“It shows that low-income earners are the biggest victims of the ongoing economic slump,” Edwin Yoon at Meritz Securities said. “Financial firms are hesitant to lend to people with poor credit. At the same time, high unemployment and stagnant income growth are taking their toll on them.”

Individual bankruptcy filings almost tripled to 12,317 in 2004 from a year earlier and have been on a steep rise this year. Given a monthly average of 2,000 for the past six months, the overall figure is expected to reach as high as 25,000 this year, court officials said.

“Low-income households are in a vicious cycle of debt spawning more debt,” a court official said.

The official said that many of those unable to repay debt are individuals, with businessmen accounting for a fraction of the number.

With the declaration of personal bankruptcy, they go through a personal debt workout system. Under the program, any debtor with a steady income repays at least 25 percent of the debt over a period of five years and is forgiven the remainder.

Making things worse for them is the decreasing number of smaller financial institutions, such as mutual savings banks and credit unions, over the past seven years.

The number of mutual savings banks specializing in financing households more than halved to 111 last year from 231 in 1997.

Since the 1997 financial crisis, many non-banking financial companies cut financing to those with poor credit. Instead, they funneled 70 percent of operating capital to small- and mediumsized businesses.

“Financial companies in the non-banking sector also thoroughly examine credit history before lending. Consequently, credit delinquents have nowhere to go to borrow money,” a local bank official said.

In the job market, they have difficulty getting jobs due to the lack of education, expertise and experience.

The number of jobs created in the first six months of this year was 262,000, much lower than 457,000 a year earlier. As a result, their income showed little sign of improving for the 6 months, while the gap between the rich and the poor continues to widen.

In the second quarter of the year, the top 20 percent income bracket posed a growth rate of 6.3 percent in income year on year while the bottom 20 percent posted a meager 0.3 percent, according to the National Statistical Office.

The number of individual credit defaulters stood at 3.61 million in December 2004 after peaking at 3.82 million in February.

godamon@koreatimes.co.kr