[Jeon Daegyu's 7 Trials and 8 Failures] Is a Repayment Agreement Valid After Discharge Confirmation?

Mr. A lent 150 million KRW to Mr. B from 2015 to 2019. Mr. B, who had no significant assets, found it difficult to find a new job after becoming unemployed. When he became unable to repay the debt any longer, he filed for personal bankruptcy with the court in July last year. The court declared bankruptcy in September 2020 and granted a discharge in May 2021. Despite the discharge being finalized, Mr. A continuously demanded repayment from Mr. B every day. Consequently, in August 2021, Mr. B reluctantly issued a promissory note to Mr. A stating that he borrowed 100 million KRW, would repay 500,000 KRW on the 20th of every month, and if he missed two payments, he would pay 150 million KRW.

If Mr. B fails to repay the amount stated in the promissory note, can the creditor Mr. A file a lawsuit seeking payment based on the agreement to repay the bankruptcy debt made after the discharge decision? This depends on whether the agreement between the debtor (Mr. B) and the creditor to repay the bankruptcy debt after the discharge decision is recognized as valid.

An individual debtor who has received a discharge is exempt from all responsibility for debts owed to bankruptcy creditors. Mr. A’s loan claim arose before the bankruptcy declaration and is a bankruptcy claim. Therefore, under the court’s discharge decision, Mr. B is exempt from responsibility for the loan debt, and Mr. A cannot enforce performance against Mr. B.

The issue is whether an agreement made between the creditor and debtor to repay discharged debts after the discharge decision is valid. The purpose of the discharge system in bankruptcy proceedings for individual debtors is to ensure equitable repayment to creditors while providing an opportunity for economic recovery and rehabilitation to individuals who have fallen into insolvency. If an agreement (debt reaffirmation agreement) between the debtor and bankruptcy creditor to repay bankruptcy debts after the discharge decision contradicts the purpose of the discharge system or undermines the effect of the finalized discharge decision, it is difficult to recognize its validity. Furthermore, when deciding whether to recognize the effect of such an agreement and grant enforceability through a judgment, it is necessary to sufficiently consider whether the agreement hinders the debtor’s rehabilitation in accordance with the legislative purpose of the discharge system.

In other words, such an agreement can only be recognized if the debtor fully understood that the debt was discharged and voluntarily agreed to repay it, and if the agreement does not impose an excessive burden on the debtor. Whether the debtor voluntarily entered into the debt reaffirmation agreement and whether the content of the agreement imposes an excessive burden on the debtor should be judged comprehensively by considering the motivation or purpose for entering into the agreement, the timing and circumstances of the agreement, and the debtor’s economic situation at the time, including assets and income.

Mr. B reluctantly issued the promissory note due to Mr. A’s persistent demands, did so only three months after the discharge was finalized, and was unemployed without assets, making debt repayment difficult. Therefore, it is unlikely that the validity of the agreement will be recognized. Accordingly, Mr. A cannot file a lawsuit against Mr. B seeking payment based on the promissory note.

Jeon Dae-gyu, Chief Judge, Seoul Rehabilitation Court