Gov’t makes it a little easier to get out of debtFrom June this year, lower income households living on subsidies and senior citizens that are struggling with debt will be eligible to have their debt principle written off by up to 90 percent when applying to the Credit Counseling and Recovery Service.
Additionally, those who are facing a significant debt burden due to an unfortunate situation, such as job loss, will be entitled to debt arbitration before their first debt default.
On Monday, the Financial Services Commission (FSC) introduced measures to lower the debt burden on lenders in a volatile situation.
According to the government, those who are living on government subsidies or pensions due to disability; elderly people over the age of 70 who meet the government’s requirement on income and personal property as well; and people who have been unable to pay off debt worth less than 15 million won ($13,325) for more than 10 years will be eligible for debt readjustment.
When applying for the government-debt arbitration program at the Credit Counseling and Recovery Service, those living on government financial support will have 90 percent of their debt principle written off, while elderly people will be eligible to have 80 percent written off. Borrowers who have been unable to pay off their debts for more than 10 years will have 70 percent written off.
Debts that are not considered to be irredeemable by the lending company will be unilaterally cut by 30 percent.
If debtors then repay the readjusted debt consistently for three years, and in doing so pay off half of their remaining debt, the rest will be completely written off.
The FSC said this measure will not be a loss for the financial companies as they will be able to collect some of the debt, which otherwise would be unpaid.
Also beginning in August, the accessibility to debt arbitration will be lowered in order to prevent people from defaulting on debt payments due to a sudden sharp decline in their income as a result of unemployment.
Under the current system, the only way to get debt readjusted is to be late on a debt payment. Under this system, a debtors’ credit rating is lowered, further worsening their financial situation.
But under the new system, the debtors can apply for debt adjustment within 30 days before they first miss a payment.
To be eligible for the expedited arbitration, a debtor needs to have become unemployed, closed their business or gone on unpaid leave in the last six months. People who have been hospitalized for more than three months and those with multiple debts recognized by the financial authority as in need of debt adjustment will also be able to apply.
People eligible for the program also have to have a credit score of seven or worse on a rating in which one is the highest. They also have to show their income has significantly reduced compared to when they took out the loan.
Payments on the principle loan will be suspended for a maximum of six months. However, they will still need to pay back the interest on the loan during that time.
These people can later request a personal debt workout if their situation fails to improve after the given six months.
Those who are considered to have intentionally not paid their debts will be unable to apply for a personal workout. This includes those whose loans exceed 3 million won or who have not paid their interest when they had the financial ability to do so.
Additionally, the FSC said it will work with the Finance Minister to adopt a system that allows for a maximum 30-percent cut to loans that are not considered irredeemable but are more than 90 days overdue.
BY LEE HO-JEONG [email@example.com]
with the Korea JoongAng Daily
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