Personal Bankruptcy: Eligibility, Procedure, Differences from Personal Rehabilitation, and Discharge

Amid high interest rates and rising prices, many people unexpectedly find themselves unable to handle their debts and start considering legal protection. Personal bankruptcy (gaein pasan) is not a stigma of failure; it is a lawful system that allows people who cannot repay to be released from their debts through the court's judgment and make a fresh start. This article walks through who can apply for personal bankruptcy, how it differs from personal rehabilitation, the actual procedure, and life after discharge.

Who is personal bankruptcy for

Personal bankruptcy is a system in which an individual with debts they cannot handle is released from them by the court's judgment. For people with almost no income or no ability to repay at all, it can be a last hope. For example, the following people may qualify.

• People whose card debt snowballed after losing their job
• People who can no longer repay loans taken out for hospital bills and living expenses
• People who lost all their assets after standing as a guarantor for someone

Personal bankruptcy and personal rehabilitation compared

If you have income, personal rehabilitation is considered first; if you have neither income nor the ability to repay, personal bankruptcy is considered first. The biggest difference is that personal bankruptcy ends in a discharge without a repayment period, but most of your assets become subject to disposal.

Six steps of the personal bankruptcy procedure

Personal bankruptcy is usually filed together with an application for discharge.

Step 1, check eligibility and prepare documents. Your debts must exceed your assets, and you must be unable to repay because you have almost no income or no fixed income. First, get an accurate picture of all your debts and gather the following documents.

• Resident registration certificate and family relations certificate
• Pay slips or income certificates covering at least 6 months
• Financial transaction records, and supporting documents for debts and claims
• Records of assets held, such as real estate and vehicles
• Statement of expenses, including living costs
• Application for personal bankruptcy and discharge on the court's form

Forms may differ slightly from court to court, so check the guidance of the court with jurisdiction.

Step 2, file for bankruptcy and discharge together at the competent court. Prepare the application and supporting documents and submit them to the district court with jurisdiction over your address. If documents are missing, a correction order is issued, and you must supplement them within the set correction period.

Step 3, the court's review and corrections. The court carefully examines the applicant's circumstances based on the submitted documents. It focuses on how the debts arose, whether there was intent such as gambling or fraud, and whether the debtor is acting in good faith. If false statements, missing materials or extravagant spending come to light, the application may be dismissed.

Step 4, bankruptcy declaration. If the court judges that you can no longer repay your debts, it issues a bankruptcy declaration. A bankruptcy trustee may be appointed, and the trustee investigates the debtor's assets and reports to the court. At this point, some assets may become subject to disposal.

Step 5, discharge hearing. If necessary, the court sets a discharge hearing and calls the debtor to court to confirm the facts directly.

Step 6, discharge decision. If the court recognizes the applicant's good faith and circumstances, it issues a discharge decision. Most debts are forgiven, and creditors can no longer pursue debt collection.

You should know before applying that it is difficult to obtain a discharge if you deliberately tried to avoid your debts, or for debts that arose from extravagant spending or gambling. The court watches whether the debtor is acting in good faith from beginning to end.

To sum up the flow in one line: checking eligibility and preparing documents, filing for bankruptcy and discharge, corrections and review, bankruptcy declaration, discharge hearing, and discharge decision.

Frequently asked questions about personal bankruptcy

As more people consider personal bankruptcy, practical questions such as what to prepare and what happens to their credit have also increased. Here are the questions that come up most often in consultations.

Can anyone apply? No. You must be insolvent, your debts must exceed your assets, and you must have almost no income or no ability to repay.

How is it different from personal rehabilitation? Personal rehabilitation requires a steady income, and you repay for 3 to 5 years and then have part of the debt forgiven. Personal bankruptcy is a system for people without income, with no separate repayment period, and once discharged you can be released from the full amount of your debts.

Do all debts disappear with bankruptcy? No. Some debts are not discharged, such as taxes, fines and administrative penalties, and child support. Debts involving intent, such as fraud or gambling, and debts arising from extravagant spending may not be granted a discharge.

What happens to my assets? In principle, most assets become subject to disposal. However, basic assets essential for your livelihood are protected, and for people with almost no assets, there is often nothing to actually lose.

Does it stay on my credit record? Yes. A bankruptcy record is registered in your personal credit information for 5 to 10 years, during which it is difficult to get a credit card or a loan, and some financial transactions are restricted. Your credit can recover over time.

How much does it cost? Without hiring a lawyer, stamp duties, service fees and document costs may come to around KRW 200,000 to 300,000. If a bankruptcy trustee is appointed, the trustee's fee may be added, and there are also ways to reduce costs through the Korea Legal Aid Corporation.

Can I do it without a lawyer? It is possible in theory, but not recommended. The procedure is complex and preparing the documents requires expertise, so it is safer to get help from someone with experience.

How long does it take? The discharge is usually decided within 6 months to 1 year. It may take longer if documents are missing, corrections are delayed, or trustee proceedings are added.

How does it affect my daily life? There are some restrictions, but you can carry on most of your daily life as usual. There are employment restrictions in certain professions such as judges, prosecutors and lawyers, and limits on financial transactions until your credit recovers, but basic livelihood activities and employment are not a problem.

What should I prepare before applying? Organize your total debt and current assets, and secure proof of income for at least the last 6 months. Check the list of documents to submit to the court and the district court with jurisdiction, and get a consultation if needed.

Life after discharge

Once you receive a discharge decision, you are freed from most debt collection. As your credit recovers, some restrictions on banking are lifted, and over time you can resume financial transactions and social activities. Some disadvantages, such as employment restrictions in certain professions for a period of time, may remain.

Personal bankruptcy is not the end; it is a system for starting over. Rather than feeling ashamed or afraid, it is important to make wise use of the system with the belief that you can begin again.

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Last reviewed: 2026-10-19 This article provides general legal information; specific advice is given through consultation.