South Korea to clear $740 million in old debts, halting collection for 110,000

South Korea's financial authorities are set to purchase approximately 1 trillion won ($740 million) in long-term delinquent debts from securitization companies, a move designed to halt collection proceedings for nearly 110,000 individuals. This initiative follows recent criticism, including remarks by President Lee Jae-myung labeling some securitization firms as engaging in "primitive predatory finance."

The program focuses on long-term delinquent debts of 50 million won or less that are at least seven years old. These debts are held by securitization companies, which were often established to manage non-performing loans from financial institutions. The Korea Asset Management Corporation (KAMCO) will purchase these debts from 45 companies, with the process expected to be completed by the end of next month. This action aims to provide relief to vulnerable borrowers who have been entangled in debt collection for extended periods.

Following the purchase by KAMCO, collection efforts on these debts will immediately cease. For individuals classified as socially vulnerable, such as recipients of basic livelihood security, their debts will be canceled without a repayment ability assessment. For other debtors, their repayment capacity will be evaluated. Those deemed to have lost their ability to repay, similar to conditions for personal bankruptcy, will have their debts canceled within a year. Others with significantly insufficient repayment capacity will undergo debt restructuring.

This measure addresses a significant issue where securitization companies, initially formed to resolve bad debts, have continued aggressive collection practices for decades. The Financial Supervisory Service identified 167 securitization companies holding approximately 5.98 trillion won in delinquent debts. Among these, 46 companies hold about 1.06 trillion won in debts eligible for this relief program, affecting over 110,000 individuals. The government's intervention aims to break the cycle of long-term debt burdens and offer a path toward financial recovery for a substantial number of citizens.

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primitive predatory finance