Personal Rehabilitation

Individual Rehabilitation is a Korean court procedure that lets a debtor in financial distress restructure debt under the court's supervision. It took effect on 23 September 2004 and is designed to adjust the legal relationships among the debtor and creditors so that the debtor can recover while creditors' interests are still accounted for. A debtor who is insolvent, or at risk of becoming insolvent, repays their monthly income minus living expenses for three to five years. The remaining debt may then be discharged. Unlike General Rehabilitation, the procedure does not require a creditors' vote; it proceeds on the court's confirmation. Ahn Hyunhee has been registered with the Korean Bar Association as a registered specialist in insolvency since 2021. The first consultation covers total debt, whether any of it is secured, and how income is structured, so that the right procedure, Individual Rehabilitation, Personal Bankruptcy, or General Rehabilitation, is identified before anything is filed. Confirmation and the repayment amount are decided by the court case by case, so we set out the eligibility requirements and the likely points of dispute rather than predicting an outcome.

Individual Rehabilitation is available to a debtor whose total obligations do not exceed KRW 500 million in unsecured debt and KRW 1 billion in secured debt, and who is likely to earn income continuously or repeatedly in the future. If either ceiling is exceeded, General Rehabilitation becomes the procedure to examine instead. The form of that income is not restricted. Employees, sole proprietors, freelancers, part-time workers and daily-wage workers all qualify as long as the income is recurring. Filing is also possible before any payment has been missed, where insolvency is a realistic prospect. In the consultation we first separate secured from unsecured debt to test both ceilings, then review what documents can evidence the continuity of recent income. Because eligibility turns on the records actually filed, we do not declare a case eligible before those records have been checked.

The repayment amount under Individual Rehabilitation is calculated from monthly income less living expenses. That surplus is paid in under a repayment plan for three to five years, and once the plan has been carried out in full, the remaining debt may be discharged. Both the amount and the term vary from case to case, depending on income, the number of dependants, and the liquidation value of the debtor's assets. Certain claims set by statute, taxes, fines, child support among them, fall outside discharge, so it is worth establishing which debts will survive the procedure before it starts. We sketch the likely shape of the repayment plan during the consultation, applying the living-expense deduction and liquidation value, and then assess together whether the plan is one the client can realistically complete. Confirmation and discharge remain decisions for the court.

Filing for Individual Rehabilitation allows an application for prohibition and suspension orders at the same time. Once granted, individual enforcement by creditors, wage garnishment, deposit attachment, forced auction of real property, stops, and direct collection activity is restrained. An auction to enforce a security interest, however, may proceed even after a rehabilitation plan is confirmed. Where a mortgaged property or a financed vehicle is involved, this has to be checked at the outset; if secured debt makes up the bulk of the case, General Rehabilitation is sometimes the better fit. In the consultation we itemise the enforcement actions currently running and sort them into those that can be stopped and those that cannot. Whether and when an order issues is for the court to decide, so we do not promise timing, we concentrate on assembling the filing materials quickly.

Individual Rehabilitation does not involve an adjudication of bankruptcy. The public-law and private-law disqualifications that follow a bankruptcy adjudication therefore do not apply, and civil servants, teachers, doctors and company officers can go through the procedure while keeping their position and their licence. Assets are not liquidated either. Where bankruptcy converts property into cash for distribution to creditors, Individual Rehabilitation is repaid out of income, so a home and the basis of daily life can be preserved. The liquidation value of what is owned does feed into the calculation of the repayment amount, however, so more assets mean a higher payment. During the consultation we check whether the client holds a position subject to disqualification and how their assets would affect the repayment figure, then compare which procedure carries the smaller cost.

Individual Rehabilitation takes in bank loans and credit card balances, but also private loans, money borrowed from acquaintances, and guarantee obligations. A single creditor cannot be left out of the process; every debt the client knows of must appear on the schedule of creditors. Unlike General Rehabilitation, a creditors' vote is not a requirement. Once the court confirms the repayment plan, repayment follows that plan whether or not creditors agreed to it. Some claims fixed by statute nonetheless survive discharge, taxes, fines, and damages arising from wilful tortious conduct among them. We build the schedule of creditors with the client early in the engagement and check it for gaps. An omission there affects the whole procedure later on, which is why it gets the most attention at the start.