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Failing to keep up with credit card or loan payments, as well as other types of outstanding debt, may lead to a call from the creditor, debt collection agency, and a lawyer. Naturally, being in debt can be a very stressful experience and those owing money may be bombarded with daily calls for payment. The first step to dealing with this situation is understanding the step-by-step process of debt collection in South Korea and what assistance is available. In particular, we will be exploring this situation from the viewpoint of the creditor.

What Is Debt Collection (채권 추심)

What exactly is debt collection, you might ask? Debt collection is when a collection agency, creditor, and/or law firm reaches out to collect overdue debts from the debtor. Overdue debt can include but is not limited to:

• Medical debt
• Property loan debt
• Car/auto loan debt
• Student loan debt
• Unpaid utility and phone bills

Who collects the debt? In most cases, the creditor is in charge of collecting the debt. However, in some cases, third-party debt collection agencies can step in to buy out the original debt for a smaller fee to the original creditor. They will then go after the debtor.

These days, voice phishing is on the rise, so sending money safely is key for both the creditor and the debtor. Authentic creditors and debt collection agencies typically require the following information when dealing with overdue fees: 

• The name of the original creditor.
• The amount you owe (including late fees and other charges).
• Your ability to dispute the debt in question, along with stipulations.

Debtors should not receive any threats, aggression, or harassment. If this is the case, the creditor, debt collection agency, or lawyer is liable to be sued. However, daily phone calls and written requests are legal.

In particular, many debtors may find themselves struggling to make payments following the COVID-19 pandemic. In this case, creditors should reach out to their debtors if hardship assistance is available for short-term aid.

In South Korea, there is the Fair Debt Collection Practices Act (채권의 공정한 추심에 관한 법률) designed to help debtors back their debt in a safe and efficient manner. Below, we will provide a brief description of the purpose of this act.

Fair Debt Collection Practices Act (Act No. 12594, May 20, 2014)
Article 1 (Purpose)

The purpose of this Act is to contribute to the development of fair practices in debt collection by deterring debt collectors from abusing their rights or using unlawful methods in debt collection and the protection of decent lives and peaceful living of debtors while ensuring the due exercise of creditors’ rights.

There are 17 additional articles included in the Act that discuss the following:

• Definitions
• Responsibilities of State and Local Governments
• Relations to other Acts
• Issuance of Debt Certificates
• Notification of Delegation
• Prohibition against Multiple Delegation of Debt Collection for Single Debt
• Prohibition against Violence and Threats
• Prohibition against Divulgence of Personal Information
• Prohibition against Misrepresentation
• Prohibition against Unfair Conduct)
• Prohibition against Demanding Unreasonable Expenses
• Liability for Damage
• Penalty Provisions
• Joint Penalty Provision
• Administrative Fines
• Imposition and Collection of Administrative Fines and Delegation of Authority

As you can see, both creditors and debtors are protected under Korean law. If you find yourself personally involved with debt collection as either party, all information on the Act is published in English and available online. As much of the language used in the Act is written in technical law terms, hiring a lawyer to help with your case will not only make the process more efficient and safe, but speedier.

Process of Debt Collection in Korea

If your debt collection process has already started, now is the time to consider hiring a lawyer. Your lawyer will take you through several key steps to reach a positive outcome for all parties. In order to understand the process more clearly, we have broken it down into five typical steps. If you have any additional questions about the following information, do not hesitate to reach out to us via email, phone, or in person.

Please note that we will be exploring the following process mostly from the viewpoint of the creditor, but useful information for both parties is provided.

1.  Case Analysis

The first and most important step is to determine whether or not the creditor has the right to request payment from the debtor. A promissory note always helps a debt collection case move along quicker, but if there is another contract or document referencing the debt, this can also be used. If no formal document has been provided, an email, recorded phone call, or message is enough to move the case along.

The most important evidence of all is the account transfer detail showing that the creditor actually sent the money to the debtor. A debt does not exist when the creditor and the debtor make an agreement “I will lend you the money” but when the money is actually sent to the debtor from the creditor.

So, if you are a creditor, make sure that you have proof that you sent the money to the debtor. It is best to send money via wire transfer so that there would be a record in the bank account. If you are sending money by cash or check, you need to leave evidence by getting a receipt from the debtor, or at least sending a message or email to the debtor such as “How was the $100 I sent you today?” etc.

This step also includes confirming the debt is actually that of the debtor. If there are any errors in the validation letter or message, debtors typically have additional time to dispute the debt.

2. Demand

Informing the debtor about debt collection is the next step. From the debtor’s perspective, this should be seen as the first warning rather than the final demand.

This is especially important for debt with no due date, because it is directly related to the occurrence of “delayed performance (이행지체).”

If you lend money to a debtor and set a deadline to repay the money, then the debtor misses the deadline without repaying the debt, then “delayed performance” is established according to Korean law. Since “delayed performance” is established, the creditor can now sue the debtor, holding them legally liable for damages for not paying the debt.

However, if you lend money to a debtor and did not set any deadline (which often happens when lending money to close friends or family members), then when would “delayed performance” start? The answer is, it starts the day after you demand your payment to the debtor. Therefore, demanding payment is a very important step because it determines the start date of “delayed performance.”

Because of this, the lawyers usually make demands in the form of an official letter delivered by the post to establish the date on which the demand was made. But even if the demand is made in other forms such as text messages or emails, “delayed performance” can still be established as long as the creditor is demanding the debtor to pay back the money.

However, this step can be skipped in certain conditions. For instance, if the debtor already missed the deadline (which means the demand does not have to be made because “delayed performance” is already established) and they are clearly refusing to pay the debt, then it would not be wise to make another demand through a lawyer. Then the debtor would notice that the creditor is about to sue them, and they might divert or dispose of their property to avoid the compulsory execution. In this case, you should skip the demand and rush into litigation.

3. Provisional Seizure (가압류)

Even if the lawsuit is won, it would mean nothing if the creditor does not actually get money from the debtor. So, just in case the debtor still refuses to pay the debt even after losing the lawsuit, the creditor needs to secure the debtor’s property in advance of the lawsuit. This is called “provisional seizure (가압류).”

The subject of provisional seizure is generally real estate. However, if the debtor does not own any real estate, the deposit in the bank account would be the next target.

4. Civil and Criminal Litigation

If the aforementioned “delayed performance” is established, a civil lawsuit can immediately be filed by the creditor.

If the debtor never had any intention to pay back the money in the first place, yet they deceived the creditor into lending them money by acting like they have the intention to pay it back, then these actions constitute a crime of fraud under the Criminal Act. Before filing a civil lawsuit, a lawyer can help the creditor file a criminal suit.

5. Compulsory Execution

If there is enough evidence to proceed, the case is likely to be won by the creditor. When winning a case, lawyers can proceed with a compulsory execution. 

If there is provisionally seized property, such as real estate or bank deposit, the sentence is executed against those properties first. If there is no real estate and no bank deposit, then seizure of the debtor’s personal possessions (TV, home appliances, etc.) can add pressure on the debtor to pay back the debt.

6. No Possession Follow-Up Step

If the creditor cannot seize the debtor’s property because they do not know what property the debtor has, they can apply for “clarification of property (재산명시)” to the Court, which makes the debtor submit the list of their property. This covers financial institutions, premium bonds, etc. under the debtor’s name. However, this is not effective if the debtor has seriously no property.

If the debtor does not follow the Court’s order in “clarification of property,” or if it has been more than six months since the debtor has not paid his debt, the creditor can apply to the Court to put the debtor on the “list of defaulters (채무불이행자 명부).” Once the debtor is put on the list, the Court sends the list to the local governments, banks, and other financial companies, which results in the serious restriction of the debtor’s financial activities. They are treated as people with bad credit, so they cannot get a new loan, make a new credit card, or buy something with an instalment plan.

Although this seems extreme, it is not common for a debt collection case to reach this stage. By this point, most debtors will have already reached out to the creditor and/or lawyer to request making smaller payments to eventually pay off the debt. A good lawyer does not wish for a case to reach this point merely for the sake of ‘winning’, but instead has the goal of getting the owed money back to the creditor.

If you or someone you know has lent money that has not been paid back, consider hiring a lawyer today. It is important to put pressure on debtors to pay back what is rightfully owed for the sake of the community at large. Seoul Law Group is able to help creditors through every step of the process, resulting in a faster, smoother case. In addition, our English services will strip away any stressful case elements that our international clients may face.