Financial companies will face restrictions on the repeated extension of the statute of limitations for long-term delinquent debts. From now on, banks and insurance companies must complete the statute of limitations for personal delinquent debts under 50 million won, while savings banks and specialized credit finance companies must do so for debts under 30 million won.
The Financial Services Commission and the Financial Supervisory Service announced that the revised 'Regulations on Debt Recognition for Financial Institutions' will take effect on October 12.
Previously, financial companies could classify debts with low recovery prospects as estimated losses and receive debt recognition, allowing them to be recognized as losses for tax purposes even before the statute of limitations was completed. This led to issues where companies held onto debts for extended periods while repeatedly extending the statute of limitations through payment orders.
The new regulations require financial companies to either complete the statute of limitations or forfeit the debt when applying for debt recognition on unsecured personal delinquent debts. However, exceptions will be made if the debtor's hidden assets are discovered or in cases of bankruptcy, rehabilitation procedures, or debt adjustment.
Even if the financial company sells the debt to another entity, the obligation to complete the statute of limitations remains. The debt sale contract must specify this obligation, and the original creditor must monitor compliance.
The revised regulations will apply starting with debt write-off applications in the fourth quarter of this year. The financial authorities will also establish a procedure to reassess the debtor's repayment ability for debts that have surpassed three years after the statute of limitations extension. If deemed unable to repay, the debt can be forfeited before the statute of limitations expires.
Additionally, banks, savings banks, credit card companies, and mutual finance companies will disclose their debt write-off, debt adjustment, and debt sale performance starting from the first half of this year, with updates provided every six months.
* This article has been translated by AI.
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