[Struggling Self-Employed] "Is Debt Relief Possible?" 100 Calls on First Day... Self-Employed Clinging to New Start Fund

Principle of Non-Disclosure of Detailed Criteria for Borrowers at Risk of Default
Limited Information Available from Call Centers
Nevertheless, Self-Employed Entrepreneurs Show Strong Interest in the New Start Fund

On the 3rd, a restaurant in Myeongdong, Seoul, where self-employed people’s worries are deepening, is quiet. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Eunju Lee] "I run a pub as a self-employed person. Am I eligible for debt relief?" Ahead of the launch of the New Start Fund in October, the call centers operated by Korea Asset Management Corporation (KAMCO) and the Credit Counseling & Recovery Service are receiving a flood of inquiries from self-employed individuals across the country. On the 5th, a call center counselor said, "On the first day of the call center operation alone, we received over 100 calls," adding, "Most of the callers are classified as distressed borrowers, and many of them asked about the specific criteria for debt relief eligibility and how to apply."

The problem is that the call centers cannot provide borrowers with much detailed information. This is because the Financial Services Commission has decided not to disclose the detailed criteria for distressed borrowers with less than 90 days overdue. They judged that revealing this information could trigger moral hazard among debtors who might intentionally try to meet the relief conditions.

However, among self-employed people, there are also complaints that "there is not much information available even if you call." A self-employed person in their 40s said, "They said applications start in October, and only after applying and undergoing screening can you know if you qualify for support. After applying in October, it will take at least two weeks to two months to find out if you are eligible. That was all they said," adding, "This is a matter of life and death for me, but there is no clear answer, so it’s frustrating."

Nevertheless, interest in the application conditions for the New Start Fund is high in online communities where self-employed people gather. They ask each other about the possibility of benefiting from the policy and share publicly available criteria for eligible borrowers in the replies. For example, in posts lamenting "I have been struggling but repaying my debts, so if I am not overdue, it’s useless," replies include "Non-overdue borrowers can also be classified as distressed borrowers," and "If you closed your business after April 2020, you may be eligible even without overdue payments," exchanging information about government support measures.

Representative examples include the Credit Counseling & Recovery Service’s debt adjustment program, which supports long-term installment repayment for borrowers overdue more than three months, and the Ministry of SMEs and Startups’ refinancing loan policy that converts non-bank loans with interest rates above 7% into low-interest policy funds at 5.5?7.0%.

The controversy over the New Start Fund encouraging "moral hazard" reveals a complex atmosphere. Opinions expressing sympathy with the moral hazard criticism, such as "As a borrower who has diligently repaid debts despite difficulties, I feel unfair that benefits seem to be given only to overdue borrowers," coexist with opinions that the actual number of debtors receiving relief is small and the effectiveness is exaggerated.

Jiyeon Kim (31), who runs a cafe in Suwon, said, "Even during the early days of COVID-19 when business was almost paralyzed, I repaid my debts faithfully," adding, "I feel unfairly discriminated against as a diligent borrower." On the other hand, in self-employed communities, there are criticisms such as "Debt relief requires being overdue for more than 90 days, but in a country where cards are suspended even if overdue for just one week, you probably need to be classified as a credit delinquent to get debt relief," and "Not many people will benefit from this system, so its effectiveness seems limited."