Prosecutors expose fake insolvency lawyers

Seoul prosecutors have exposed 168 fake lawyers who defrauded clients out of billions by claiming they could help them pay their debts.

From June 2009 to last May, these fake lawyers signed contracts with clients who could not pay their debts and applied for them to receive individual rehabilitation.

If a person has a constant source of income, mortgage bonds below 1 billion won ($865 million) or unsecured debt below 500 million won and they can show they are unable to repay their debts within their lifetime, they qualify for individual rehabilitation.

This allows applicants to get out of insolvency within five years by giving creditors everything they earn except what is needed for basic living expenses.

The so-called lawyers reportedly handled about 34,000 cases and profited 54.6 billion won, violating the Attorney-at-Law Act in the process. Among them, 53 were arrested.

But the brokers would not have been able to pull off this feat without help from lawyers, advertisers and loan sharks.

The prosecution therefore charged 33 lawyers and 8 judicial scriveners without detention for lending their law licenses to the brokers and profiting 1 to 2 million won every month. Four of these lawyers were formerly judges or prosecutors.

Two online advertisement managers who gathered clients online and linked them to the brokers were also arrested.

One loan shark was among those arrested. He raked in about 12.2 billion won by working with 25 brokers over the past three years, lending money to clients introduced to him by brokers and charging them 34.9 percent interest on loans they needed to pay their “legal” fees.

While authorities have often exposed such brokers in the past, many still turn to such individuals hoping to make ends meet. According to the Court of Korea, the number of applications for individual rehabilitation grew from about 46,000 in 2010 to 110,000 in 2014.

Unlike bankruptcy, individual rehabilitation is also open to people who have gambled away all their assets, and those who have filed for bankruptcy can still apply for individual rehabilitation.

The system is bad news for creditors who could otherwise dog the indebted for decades in order to get back what they lent, often with interest, but without such a system, many may never be able to get out from under their debt no matter how hard they work.

BY ESTHER CHUNG, LEE YU-JUNG [chung.juhee@joongang.co.kr]