Bankruptcy
Overview
Bankruptcy (파산, bankruptcy) refers to a legal procedure in which, when an individual or legal entity becomes economically insolvent and unable to repay all debts, the court forcibly settles the rights and obligations between creditors and the debtor. Bankruptcy is not merely an economic failure but an event with legal effect; upon receiving a bankruptcy order, the debtor loses the right to dispose of their property for a certain period, and a court-appointed trustee manages and liquidates the assets to distribute them to creditors. The purpose of the bankruptcy system is to give the debtor a chance to start anew and to ensure fair repayment among creditors.
Main Content
Types of Bankruptcy
Bankruptcy is broadly divided into personal bankruptcy and corporate bankruptcy. Personal bankruptcy is filed when a natural person cannot bear their debts, and remaining debts may be discharged through a discharge procedure. Corporate bankruptcy is a process in which a company is liquidated when it becomes insolvent, settling the rights of shareholders and creditors. Additionally, bankruptcy is classified into voluntary bankruptcy, where the debtor files voluntarily, and involuntary bankruptcy, where creditors file a petition with the court.
Requirements for Bankruptcy
To file for bankruptcy, the debtor must be in a state of 'insolvency' or 'suspension of payments'. Insolvency refers to an objective state where the debtor is generally unable to repay debts as they fall due. Suspension of payments is a state where the debtor has temporarily stopped making payments, which also constitutes a ground for bankruptcy. The court examines these requirements to decide whether to issue a bankruptcy order.
Bankruptcy Procedure
The bankruptcy procedure generally proceeds through stages: filing, hearing, order, asset liquidation and distribution, and closure. When a debtor or creditor submits a bankruptcy petition to the competent court, the court holds a hearing and decides whether to issue a bankruptcy order. Once a bankruptcy order is issued, the court appoints a trustee, who freezes and manages the debtor's assets. The trustee investigates and liquidates the debtor's assets to distribute them to creditors. In personal bankruptcy, remaining debts may be discharged through a discharge application, and the court decides on discharge considering the debtor's good faith and the interests of creditors.
Effects of Bankruptcy
Upon a bankruptcy order, the debtor loses the right to manage and dispose of their property, and all claims are enforced according to the bankruptcy procedure. The debtor lives under the supervision of the trustee, and a certain amount of exempt property (e.g., minimum assets necessary for livelihood) may be protected. In corporate bankruptcy, the company undergoes liquidation and its legal personality is dissolved. Bankruptcy severely impacts creditworthiness and may impose restrictions on financial transactions or business activities for a certain period.
Difference Between Bankruptcy and Rehabilitation
Bankruptcy is a liquidation-type procedure that liquidates the debtor's assets to distribute to creditors, whereas rehabilitation (rehabilitation procedure) is a reorganization-type procedure that allows the debtor to continue their business or economic activities while adjusting and repaying debts. Rehabilitation is a system that gives businesses or individuals a chance to avoid bankruptcy and start anew, establishing and implementing a debt repayment plan with court approval. While bankruptcy is a last resort, rehabilitation has a stronger preventive nature.
Recent Trends
As of 2024–2025, the number of personal and corporate bankruptcies is increasing due to global economic uncertainty and high interest rates. In the United States, corporate bankruptcy filings in 2024 increased by more than 30% compared to the previous year, with bankruptcies notably prominent in the retail and tech startup sectors. In South Korea, personal bankruptcy filings exceeded 50,000 in 2024, setting an all-time high, analyzed as a result of accumulated debt burdens on self-employed individuals and vulnerable groups after the COVID-19 pandemic. Additionally, bankruptcy cases related to increased volatility in the digital asset (cryptocurrency) market are rising; in 2024, bankruptcy proceedings of major cryptocurrency exchanges led to active discussions on strengthening regulations. In the legal field, the digitalization of bankruptcy procedures and the introduction of online filing systems are expanding, and debtor rehabilitation support programs are being strengthened.
Related Topics
- [[Rehabilitation Procedure]]
- [[Default]]
- [[Credit Delinquent]]
- [[Corporate Liquidation]]
- [[Discharge]]
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