Prioritize: Personal Rehab or Tax Exemption?

Personal Debt Rehabilitation

Personal rehabilitation is a system where a debtor with a certain income pays a court-determined amount over a period of 3-5 years. Typically, up to 90% of the debt can be exempted. Personal rehabilitation is a system where the debtor can keep their property intact while paying back the creditor the amount remaining from their income after deducting the minimum necessary amount (minimum living expenses). This system can benefit both the debtor and the creditor, as the creditor can receive some of the debt paid back instead of being unable to recover the debt at all. Once the court has decided on personal rehabilitation, the debtor must make monthly payments, and once all the debt is repaid, they can apply for exemption.

 

Personal Bankruptcy

Personal bankruptcy is a system that can be applied by a debtor who is unable to pay back their debts, meaning they have no property and a fixed income. If they have any property, the court must go through a process of collecting all the debtor's assets and distributing them to the creditors. Unlike personal rehabilitation, personal bankruptcy exempts 100% of all debts, so the examination process is strict. When talking about bankruptcy, you will often hear the term "exemption." This is the process of being freed from debt after receiving an exemption decision.

 

Bankruptcy is the process of collecting all my property and redeeming it to the debtor. After the bankruptcy procedure is complete, all my property has been used for redemption, but the debt remains. The process of relieving me of responsibility for the remaining debt is the exemption. Since you can only be free from debt after receiving an exemption decision, it can be an opportunity for economic recovery.

 

Credit Recovery Committee

When running a business or for other reasons, if one's debt becomes a big burden, one may consider personal debt rehabilitation or bankruptcy exemption system. Depending on one's situation, one can consider which system to apply for. If all of one's creditors are financial institutions and there are no individuals, one can check if they can apply to the Credit Recovery Committee first. If the creditor is listed on the Credit Recovery Committee website (https://www.ccrs.or.kr/), one can consider personal workout.

 

1. Credit Recovery Committee website
2. Personal Debt Adjustment
3. Financial companies that have signed an agreement
4. Search and view financial company names

 

Non-dischargeable Debt

Personal debt rehabilitation means that after receiving a decision, you repay the adjusted debt amount every month. This means that you have a certain income. On the other hand, if you receive bankruptcy relief, it means that the court has confirmed that you have no income or property. In that case, can a person who has received rehabilitation or bankruptcy relief also qualify for a tax reduction for tax arrears? A person who has received personal rehabilitation or bankruptcy relief has had their debt relations with creditors resolved by a court decision. Below is a list of debts that cannot be resolved by personal rehabilitation or bankruptcy. These are called non-dischargeable debts.

 

• Tax
• Fines, fees, surcharges, penalties, fines, criminal litigation costs
• Damages for intentional and illegal acts
• Damages for illegal acts that seriously harm the life or body of others due to gross negligence
• Employee wages, severance pay, and workers' compensation
• Employee deposit, credit guarantee deposit
• Costs that must be borne as a custodian or support obligation holder
• Repayment of student loans after employment
• Claims not intentionally listed on the creditor list

 

These non-dischargeable debts include tax debts. Even if one applies for personal debt rehabilitation or bankruptcy and receives a decision, non-dischargeable debts including taxes cannot be reduced. However, when applying, it is recommended to include non-dischargeable debts as well. When a discharge decision is made in court, it can be discharged as a non-dischargeable debt. If one applies for non-dischargeable debt, there may be cases where the court asks to exclude it from the application. It is advantageous to include non-dischargeable debts from the beginning when applying.

 

If there are individual debtors who cannot apply to the Credit Rehabilitation Committee, they can consider rehabilitation or bankruptcy discharge. If the amount of dischargeable debt is significant and the individual's situation meets the conditions for applying for bankruptcy discharge, they may consider bankruptcy instead of personal rehabilitation. This is because it may be difficult to be approved for personal rehabilitation when there is a significant amount of dischargeable debt.

 

However, this does not mean that you cannot apply for personal rehabilitation if you have overdue taxes. For example, if you apply for personal rehabilitation while there are overdue taxes, the taxes may be excluded as dischargeable debts, and only other debts may be reduced. In principle, it is correct that taxes are included and subject to priority repayment or full repayment, but if a decision is made like this, there may be many cases where the rehabilitation decision is abandoned in the middle of the rehabilitation period. You can also claim that it is a dischargeable debt if a decision is made that includes taxes.

 

What should I do first, personal rehabilitation or overdue taxes exemption?

There are two ways to resolve overdue taxes. First, pay all of them, or second, complete the five-year statute of limitations (10 years for KRW 500 million or more). The reason why dischargeable debts, such as taxes, are not reduced and are subject to priority repayment when applying for personal rehabilitation or bankruptcy is because you need to pay all overdue taxes to resolve them. However, if the situation is difficult enough to apply for personal rehabilitation or bankruptcy, and the amount of overdue taxes is significant, you can consider completing the statute of limitations (exemption from overdue taxes).

 

The tax office is aware of the fact that the debtor has been granted personal rehabilitation. Moreover, during the repayment period, such as during personal rehabilitation, the statute of limitations for overdue taxes cannot be completed. Also, even if a person receives a bankruptcy decision, overdue taxes do not disappear automatically.

 

It doesn't take too long to receive a decision on personal rehabilitation or bankruptcy. Depending on the court, it can take up to a year to reach a decision. However, it takes five years for the statute of limitations on unpaid taxes to be completed.

 

For example, if a business goes bankrupt, you can first consider the Credit Recovery Commission, followed by personal rehabilitation or bankruptcy in order. If the debt is within your capacity to pay, these options may not apply, but if you cannot handle the increasing interest, it is best to find a solution within the system. The sooner you make a decision and take action, the sooner you can recover.

 

If your business has recently closed, it may be advantageous to first apply for personal rehabilitation or bankruptcy. However, if it has been several years since the business closed, you must decide whether to apply for personal rehabilitation or bankruptcy first, or to resolve unpaid taxes first. In this situation, you need to consider various factors when deciding which one to address first. As mentioned earlier, if you apply for personal rehabilitation, you cannot claim that the statute of limitations on unpaid taxes has expired during the repayment period. Therefore, you need to make a careful decision on whether to apply for personal rehabilitation or bankruptcy based on your own situation. Unlike personal rehabilitation, if you apply for bankruptcy, you can also apply for exemption from unpaid taxes at the same time. However, there are other variables to consider, so it is impossible to predict in advance how each individual situation will differ. The ultimate goal is to find the fastest way to achieve economic recovery. If you want to know more, please leave a comment.

 

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