Criteria and Differences Between Individual Business Owner Rehabilitation and Corporate Rehabilitation

Since the outbreak of COVID-19, the debt of self-employed individuals has skyrocketed to over 1,000 trillion KRW. With high-interest rates and economic downturn, the ability of self-employed individuals to repay their debts is steadily declining. Even the government’s support measures for repayment deferrals, which once served as a cushion, have reached their limits in the worst-case scenario.

According to the Bank of Korea, the debt of vulnerable self-employed individuals who are multi-debtors with loans from three or more financial institutions and who are in a low-income and low-credit situation amounts to 104 trillion KRW. South Korea, with a large percentage of its population in self-employment (20% of the entire working population), urgently needs to expand the minimum social safety nets to ensure that self-employed individuals can maintain their livelihoods.

The bankruptcy rate of individual business owners, which decreased from 14.2% in 2016 to 10% in 2022, rose by 0.9 percentage points in the previous year. This means that for every 10 self-employed businesses that start, 8 will eventually close. According to Statistics Korea, as of January to August 2023, the number of self-employed individuals was 5.636 million, accounting for 19.7% of all employed individuals (28.54 million). The proportion of non-wage workers, including the self-employed and unpaid family workers, was 22.8%, significantly down from 68.5% in 1963. This is the first time the proportion of self-employed individuals in South Korea has fallen below 20%.

Self-employed individuals buried under "mountains of debt" must not be left to deteriorate into bankruptcy or closure as their neighbors or peers face similar fates. Many self-employed individuals, when sales decline, resort to higher-interest loans to barely keep their businesses afloat. Eventually, the burden of high-interest loans snowballs, pushing them further into debt and forcing many to shut down their businesses or file for bankruptcy.

In such cases, individuals should stop borrowing money from friends or acquaintances, reduce costs aggressively, and, when there is a business profit (the difference between sales and the cost of sales and administrative expenses), they should promptly consider individual rehabilitation or general rehabilitation. The rehabilitation system for individual business owners is divided into personal rehabilitation procedures and general rehabilitation procedures, with the latter being similar to corporate rehabilitation procedures.

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