Personal Bankruptcy & Discharge

Personal Bankruptcy is the procedure by which an individual debtor, unable to pay their debts even with the whole of their property, petitions for bankruptcy in order to wind those debts up. It covers two situations. Consumer bankruptcy arises where someone who does not run a business, a salaried worker, a homemaker, a student, buys goods or borrows money beyond their capacity to repay and ends up insolvent. Business bankruptcy arises where a sole proprietor takes on debt through trading and the business fails. Ahn Hyunhee is registered with the Korean Bar Association as a registered specialist in insolvency and has practised in Wonju since opening with the Gangwon Bar Association in 2011. We begin by asking whether the client's income could support a repayment structure at all, which is what separates a rehabilitation case from a bankruptcy case. Because bankruptcy involves converting assets into cash, we set out what is given up alongside what is resolved, so the decision is made with both in view.

Bankruptcy and discharge are open to anyone who has become insolvent, unable to pay their debts in full. The procedure does not distinguish between those who run a business and those who do not, and the kind of debt is unrestricted: bank loans, credit card balances, private loans all count. Being registered as a credit defaulter is not a precondition either. Where property and income together make repayment impossible, a petition is available even before any payment has been missed. Conversely, a large debt that income could still service may be a rehabilitation case rather than a bankruptcy one. In the consultation we look at the structure of assets and income before the headline debt figure. Insolvency is something the court determines on the evidence, so our starting point is identifying which records that determination will need.

Insolvency means an objective state in which the debtor's capacity to pay is so far short that debts already due can no longer be met generally and continuously. It is distinct from a temporary cash squeeze. The assessment runs along two lines. On the asset side, the question is whether what the debtor owns is worth so much less than what they owe that repayment is out of reach. On the income side, the question is whether anything at all is left over once minimum living costs are covered. Both lines are measured by the objective picture the records show, not by how the debtor characterises their situation. Our preparation starts by organising the schedule of assets and the income records against those two lines, because which of them falls short determines what supporting evidence the case will need.

A discharge order releases the debtor from liability for the debts covered by it. After discharge, delinquency records held in the credit information system are cleared, and enforcement measures still running can be lifted. In practical terms, ordinary banking, deposits, savings plans, insurance, housing subscription accounts, becomes available again, and property built up afterwards stays with the debtor. Discharge is not in itself an obstacle to running a business in one's own name or to obtaining a professional certification. Certain claims that statute excludes from discharge nonetheless remain, including taxes, fines, and damages for wilful tortious conduct; and whether discharge is granted at all is decided by the court case by case. We identify which debts will survive before the petition is filed, and set out the order in which credit standing is usually restored afterwards.

An adjudication of bankruptcy brings certain disqualifications with it. Under private law, the debtor cannot serve as a guardian, a member of a family council, an executor of a will, or a trustee, though legal capacity, capacity to act and capacity to litigate are themselves untouched. Under public law, the debtor cannot hold office as a civil servant, attorney, licensed real estate agent, patent attorney, notary, real estate broker, private school teacher or licensed architect. Under commercial law, adjudication is a ground for withdrawal of a partner in a general or limited partnership; and for a director of a stock or limited company, the mandate relationship terminates on adjudication, so the directorship ends automatically. It is also worth checking in advance whether the employer's rules of employment treat adjudication as automatic grounds for dismissal. These restrictions are of a kind that is resolved through discharge and reinstatement, but they bite while the procedure is running. We check occupation and position first, and revisit at that point whether bankruptcy or rehabilitation is the right route.

In a bankruptcy proceeding the debtor has a duty to give whatever explanation the case requires when asked by the trustee or the creditors' meeting. Most questions concern how the debt arose and where the assets went. Refusing to explain without cause, or giving a false explanation, is a criminal offence and at the same time a ground for refusing discharge. Understating the facts to move things along faster can be exactly what blocks discharge in the end. Before filing, we work through the statement of how the debt arose together with the client and mark the points that will need explaining. Our standing advice is that unfavourable facts are safer disclosed and documented than left out.