[In-Depth Review] It's Time to End Discrimination Against Bankrupt Individuals

As the COVID-19 pandemic prolongs, reports indicate an increase in the number of individuals and businesses going bankrupt. In this situation, it is expected that more vulnerable individuals will apply for personal bankruptcy or rehabilitation. Some opinions suggest that the number of personal bankruptcy or rehabilitation applications is not significantly high compared to the current economic conditions, the continuous increase in household debt, and the prolonged special crisis situation. However, there are forecasts that the risk of personal bankruptcy will significantly increase once loan interest rates rise substantially and government support for self-employed individuals decreases.

The fortunate aspect is that the Seoul Rehabilitation Court has been actively accepting special discharge applications since February, granting discharge decisions upon the applicant's request when it is impossible to complete repayment due to difficulties in income-generating activities. Additionally, the court has established and is about to implement practical guidelines that broadly allow setting the repayment period for personal rehabilitation to less than three years. According to the revised guidelines, personal debtors who are elderly, disabled, young, have multiple children, or are single-parent families can have their repayment period set to less than three years regardless of how much principal they have repaid. These measures align with the purpose of the personal rehabilitation system, which aims to promptly assist debtors in an insolvent state and help them return to economic activity quickly.

However, compared to the personal rehabilitation procedure, the personal bankruptcy system, which allows for rapid settlement of excessive debt, has a significant pitfall. Individuals who have been declared bankrupt and have not been reinstated (so-called ‘pasanja’) face very broad restrictions on qualifications and status. Bankrupt individuals are restricted from becoming national or local government officials and cannot obtain professional qualifications such as lawyers, judicial scriveners, or tax accountants. They are even disqualified from occupations such as general security guards, childcare providers, marriage brokers, and insurance planners due to occupational disqualification reasons, and are excluded from serving as jurors in citizen participation trials or from eligibility for government-funded study abroad exams. There are more than 200 laws that restrict the qualifications or status of bankrupt individuals.

The Debtor Rehabilitation Act stipulates that "no one shall be subjected to employment restrictions, dismissal, or other unfavorable treatment without just cause due to being under rehabilitation, bankruptcy, or personal rehabilitation procedures under this Act," prohibiting discriminatory treatment. Nevertheless, various individual laws impose restrictions on the status and qualifications of bankrupt individuals, rendering this provision ineffective in practice.

The restrictions on the status and qualifications of bankrupt individuals can only be seen as an outdated custom viewing the bankruptcy system as a disciplinary measure. In reality, because discriminatory regulations against bankrupt individuals exist, there is an optical illusion that such discrimination is natural. If these discriminatory regulations were removed, it would raise questions as to why these regulations have persisted for so long without being abolished. It is now time to abolish discrimination against bankrupt individuals. Fortunately, since 2019, the Seoul Rehabilitation Court has been actively advocating for the complete abolition of discrimination against bankrupt individuals, even drafting revised legislation. Additionally, Park Ju-min, a member of the National Assembly from the Democratic Party of Korea, who co-hosted related forums, is preparing a bill for full abolition. Cooperation between the National Assembly and the judiciary is not easy, so it is hoped that this opportunity will lead to the submission and passage of the bill, completely eliminating the discrimination against bankrupt individuals that should have been abolished long ago.

Baek Ju-seon, Chief Attorney, Law Firm Yungpyeong