South Korea Restricts Sale of Overdue Debts for Expedited Restructuring Cases

The Financial Services Commission (FSC) has approved revisions to its supervisory regulations, significantly enhancing protections for individuals undergoing expedited debt restructuring. A key change prohibits the sale of overdue debts for those enrolled in the Credit Counseling and Recovery Service's (CCRS) expedited program. This aims to shield diligent debtors, who are actively repaying their loans, from the potential negative consequences of their debts being sold to third-party collection agencies.

Last year, 53,659 individuals received assistance through the CCRS expedited debt restructuring program. Notably, 65% of these individuals had not yet missed a payment, highlighting the program's preventative role. The CCRS expedited program offers support such as up to 10-year installment plans, full waiver of overdue interest, and reductions of 30-50% on contractual interest rates for those with less than 30 days of delinquency or at risk of default.

“

The CCRS expedited debt restructuring program proactively prevents long-term delinquency and credit deterioration at the early stages of delinquency or risk.

The FSC emphasized that selling debts of individuals in this program, who are committed to repayment and have not yet incurred long-term delinquency, would impose excessive disadvantages. The revised regulations also mandate that financial institutions include resale restrictions in their debt sale contracts. This aims to prevent the repeated resale of debts and hold the original creditor financial institutions accountable for the resale process.

Furthermore, the revisions will curb the practice of extending the statute of limitations for overdue debts to prolong collection efforts. For overdue debts held by financial institutions, tax law will now only recognize a bad debt deduction upon the expiration of the statute of limitations. The FSC anticipates this will establish a practice of prioritizing the completion of the statute of limitations, with extensions being an exception, thereby providing clearer finality for debtors.

“

Selling overdue debts of individuals in the expedited debt restructuring program, who are committed to repayment and have not yet incurred long-term delinquency, would impose excessive disadvantages on the debtors.