Origins and the fresh-start idea
Early bankruptcy law, like England's 1542 statute, punished defaulting traders. The modern idea of a 'fresh start' for honest debtors came later and is central to the US Chapter 7. Korea passed a Bankruptcy Act in 1962, but individuals rarely used it until the 1997 Asian financial crisis and the 2003 credit card bubble left millions over-indebted. The scattered insolvency statutes were merged into one act effective April 1, 2006, and a specialist Seoul Bankruptcy Court opened in March 2017.
The four steps
- Petition with lists of creditors, assets and income.
- Adjudication: the court checks inability to pay.
- Liquidation: closed at once if there is nothing to distribute; otherwise a trustee sells assets.
- Discharge if no grounds for denial exist.
Roughly, this mirrors US Chapter 7, while Korea's individual rehabilitation resembles Chapter 13 with a 3–5 year repayment plan.
Denial and debts that survive
Hiding assets, gambling or reckless spending, false filings, or a discharge within the past seven years can block relief. Taxes, fines, damages for intentional harm, child support and deliberately omitted debts survive discharge. Your credit score can recover over time.
What the research says
Fay, Hurst and White (2002) found filings rise with the financial benefit, the moral hazard worry behind the 2005 US means test, which White (2007) argues did not solve card debt. Yet Sullivan, Warren and Westbrook (1989) showed most filers are ordinary families hit by job loss, illness or divorce, and Dobbie and Song (2015) found protection raised later earnings and lowered mortality.
FAQ
- Does my family inherit my debt?
- No, but anyone who co-signed remains liable as a guarantor.
- Can foreigners file in Korea?
- Residents with debts and assets in Korea can generally use the procedure; get local legal advice first.
Sources reviewed: 2026-11-02
References
- 국가법령정보센터. (n.d.). 채무자 회생 및 파산에 관한 법률. Full text of Korea's Debtor Rehabilitation and Bankruptcy Act.
- 대한민국 법원. (n.d.). 회생·파산 제도 안내. Korean courts' official guide to insolvency procedures.
- 대한민국 법원 전자소송·통계. (n.d.). 회생·파산 사건 통계. Court statistics on bankruptcy and rehabilitation filings.
- Sullivan, T. A., Warren, E., & Westbrook, J. L. (1989). As we forgive our debtors: Bankruptcy and consumer credit in America. Oxford University Press. Shows most filers are ordinary families hit by job loss, illness or divorce.
- Fay, S., Hurst, E., & White, M. J. (2002). The household bankruptcy decision. The American Economic Review, 92(3), 706–718. Filing rises with the financial benefit of bankruptcy.
- Dobbie, W., & Song, J. (2015). Debt relief and debtor outcomes: Measuring the effects of consumer bankruptcy protection. The American Economic Review, 105(3), 1272–1311. Bankruptcy protection raised earnings and lowered mortality.
- White, M. J. (2007). Bankruptcy reform and credit cards. Journal of Economic Perspectives, 21(4), 175–199. US 2005 bankruptcy reform and credit card debt.