The Non-discrimination Clause and Credit Counseling: What Elements of U.S. Personal Bankruptcy System should be Introduced to Korea?

Abstract

The first case of personal bankruptcy was filed in 1997 in Korea. Due to the Asian economic

crisis, the number of filings has drastically increased, reaching 154,000 in 2007. However, the

increase in number does not necessarily mean that the lives of debtors have improved. What is

more important is how we can help debtors to make a fresh start. Now we should focus on the

Post-bankruptcy and Pre-bankruptcy systems. Learning from the experiences of U.S. will be very

helpful for this. In fact, some experts in Korea are deeply interested in the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005, and some of them are arguing that Korea

should import new elements of it.

In this respect, this paper will deal with what elements of the U.S. personal bankruptcy

system should or should not be introduced to Korea. Surely there are many elements to consider,

but this paper will concentrate on two elements which could be the most influential to personal

bankruptcy practice in Korea today: the Non-discrimination Clause and Mandatory credit

counseling.

The Non-discrimination clause is the most powerful protection for the bankrupt. However,

the non-discrimination clause of Korea is too ambiguous and not effective enough. Therefore, it is

imperative that it be revised as soon as possible. The U.S. non-discrimination clause can be the

best reference for this.

In addition, mandatory credit counseling is not needed in Korea. The history of U.S. credit

counseling tells us that credit counseling does not mean that a generous helping hand is given to

debtors. The main policy reason for mandatory credit counseling is to reduce the number of

bankruptcy filings. However, Korea has struggled for the last 10 years to increase the number of

bankruptcy filings, fighting against deep social stigma and ignorance on bankruptcy. What we

need now is not building new barriers, but breaking down old barriers.