The Comparative Status of Secured Creditors in the Bankruptcy Procedure and Its Implication for the Financial Transaction

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Seul, Min Soo
Issue Date
BK 21 law
Journal of Korean Law, Vol.7 No.2, pp. 385-415
Status of Secured Creditors in bankruptcytension and conflicts of secured creditors and debtorsExemption from Bankruptcy in KoreaHistorical development in financial marketJudicial sale of real estateStayAvoidance PowerStrong Armprivate ordering of financial marketinfluence of government interventiondistortion effect by strong status of secured creditors
Official declarations of bankruptcy have and had different meaning and stigma in ountries.

A decade after the economic upheaval witnessed dramatic changes of scenes surrounding

bankruptcy in Korea. The petition of total bankruptcy procedure climbed from 79 in 1996 to 180,055 cases in 2006. All of these turbulent reformation and virtual rebirth of bankruptcy in Korea fall short in one area. These changes do not stir secured creditors status in bankruptcy procedures. Compared to U.S., secured creditors in Korea enjoy very strong legal protection even after the debtors insolvency realizes. This article will survey the Korea and U.S. law governing

secured creditors under bankruptcy procedure and suggests that these relative differences of legal treatment of secured creditors have enormous impacts on the financial transactions beyond bankruptcy itself, specifically consumer and commercial loan practices. While scholars of law and economics suggest that surviving legal system may be the most efficient ones to reflect articular social demand and incorporate practices of private parties, but the legal procedure and allocation of powers in it determines and entrenches the formation and terms of market transactions though it is not the most efficient practices. This article suggests that the status of secured creditors in bankruptcy influences beyond the bankruptcy itself and affects the incentives of financial transaction and costs. Though comparative lens between U.S. and Korea, this article details that the comparative difference of status of secured creditors under bankruptcy between Korea and U.S. and that roots of this divergence has related to financial market. While some development in

Koreas financial market will provide room for further reform to maneuver the pre-bankruptcy entitlement, the differed role of bankruptcy in secured transaction as an entrenched aspect in market will survive any reform and affect the financial transaction and corporate investment decision eciprocally
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College of Law/Law School (법과대학/대학원)The Law Research Institute (법학연구소) Journal of Korean Law (JKL)Journal of Korean Law Volume 07 Number 1/2 (2007)
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