[Financial Focus] “Don’t pay off your debt”… As bad banks emerged, illegal personal rehabilitation sales continued on social media.

Solution and consulting advertisements on SNS
Brokers provide debtor personal rehabilitation consulting
“The risk to the debtor is high and it causes social harm.”

“Get 90% written off through the personal rehabilitation system promoted by the government.”

This is an advertising phrase that appears frequently on social media (SNS) such as YouTube and Instagram. Deceptive phrases that promise to reduce the loan burden, such as “Check the forgiveness amount even if you do not plan to revive immediately” or “How to reduce the loan amount by 90% through the government system,” are noticeable. Some advertisements even proudly state that they are the ‘National Debt Relief Support Center’ along with the Taegeuk symbol, the official logo of the Korean government. Thinking that it is a public institution, you go to the website through the link in the advertisement, and for some reason, you are prompted to consult a law firm.

Recently, as the Lee Jae-myung administration's bad bank has emerged as a hot potato, personal rehabilitation advertisements are rampant on social media. We are actively promoting our service, saying we will provide ‘solution’ services not only to lawyers but also to those who are not qualified to represent personal rehabilitation. The problem is that solution advertisements that appear frequently recently encourage misuse of personal rehabilitation, claiming that they will ‘enable you to reduce any debt.’ In a situation where the government is pursuing a bad bank policy of burning delinquent bonds en masse, this is a business that stimulates curiosity as to ‘Can I get rid of my debt?’

The identities of those who advertise solutions are diverse. Small and medium-sized law firms sometimes advertise directly, and sometimes loan brokers, loan companies, and illegal private finance companies are involved. Although each advertising entity is different, their goal is the same. The idea is to save money by increasing personal rehabilitation benefits. First, loan brokers and loan companies act as brokers. They lure debtors by offering solutions or consulting services. Brokers are responsible for teaching people how to meet personal rehabilitation standards and connecting them to lawyers they have collaborated with. Brokers receive fees from lawyers during this process.

There are several problems with this solution sales practice. First of all, it may be illegal. It is a violation of the Attorney-at-Law Act for people without a lawyer's license to perform some debt settlement agency work and hand over cases to lawyers in exchange for a fee. Moreover, solutions using brokers also bring disadvantages to the debtor. Typically, the cost of hiring a personal rehabilitation lawyer is 2 to 5 million won. Of this, the broker takes about 20-30% as a commission. From the lawyer's perspective, he or she receives more money from the debtor because he or she has to pay a broker's fee.

Above all, the consulting activities of solution brokers pose unexpected risks to debtors. Brokers whisper that they will negotiate various conditions for the debtor and allow him/her to undergo debt restructuring. They encourage you to lie about how the loan money will be used or to hide some supporting documents. However, according to legal experts, even if you commit fraud after listening to your broker, there is a high possibility that you will be caught during the personal rehabilitation process. If such misconduct is discovered, the responsibility lies entirely with the debtor. In addition to failing to recover personally, you may also be accused of deceiving the court.

Jeong Il-woo, a responsible attorney at Daeryun Law Firm, said, “Recently, there has been a flood of incorrect information related to personal rehabilitation,” and added, “The safest way is for the debtor to directly seek out an insolvency lawyer and receive consultation.”

Moreover, solution sales that occur in the dark are also harmful to our society. This is because it promotes moral hazard, which means ‘you don’t have to repay the loan.’ In addition, misuse of personal rehabilitation increases social costs. The purpose of the system, which should only be received by those who absolutely need it, is being polluted. Jeong-won Yoon, head of the Korea Legal Aid Corporation’s Personal Rehabilitation and Bankruptcy Support Center, said, “You should not use personal rehabilitation just because you do not want to repay the money right away,” and pointed out, “If personal rehabilitation that is not absolutely necessary increases, it eats up public resources and increases social costs.”

Reporter Kim Tae-ho (teo@chosunbiz.com)

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[Financial Focus] “Don’t pay off your debt”… As bad banks emerged, illegal personal rehabilitation sales continued on social media (link)