CONTENTS
- 1. Debt Collection | Definition
- 2. Debt Collection | Caution Regarding Unlawful Collection
- - Restriction on Registration as a Defaulter
- - Prohibition and Restriction on Contacting the Debtor After Appointment of a Representative
- - Prohibition of Assault, Intimidation, and Acts That Induce Fear
- - Prohibition of Disclosure of Personal Information and Credit Information
- - Prohibition of False Representation and Unfair Acts
- - Liability for Damages
- 3. Debt Collection | Procedure
- - Subjects of Debt Collection
- 4. Debt Collection | Matters Creditors Should Note
- - Key Issues in Debt Collection
1. Debt Collection | Definition
Debt collection refers to the entire process that an individual or company undertakes to recover a debt when it is owed money by another party but has not received the amount.
The main debt collection work includes investigating the debtor’s assets, urging repayment of the claim, acting on behalf of the creditor in receiving repayments from the debtor, and ascertaining the debtor’s whereabouts.
To pursue debt collection, the creditor must entrust the collection work to a legally qualified institution or an attorney.
The work must be entrusted to a person who meets the requirements and qualifications under the Credit Information Act, and entrusting it to an unqualified institution or individual may give rise to legal problems.
Therefore, before entrusting debt collection, the creditor should confirm that the institution or legal professional holds the proper qualifications.
2. Debt Collection | Caution Regarding Unlawful Collection
In debt collection, one must be cautious of unlawful collection practices.
A creditor may pursue debt collection based on a legitimate right, but if the debt collector exceeds the scope set by law and pressures the debtor through excessive or unlawful methods, this constitutes unlawful debt collection and is followed by various criminal punishments and administrative sanctions.
Restriction on Registration as a Defaulter
If a debtor contests the very existence of the debt and files a suit that is pending, the debt collector must not register that debtor as a defaulter on the network of a credit information collection agency or a credit information company.
If the debtor was already registered, the debt collector must delete the relevant information within 30 days from the day it learns that a suit has been filed and is pending.
A violation of this requirement results in an administrative fine of KRW 1.5 million for a first violation, KRW 3 million for a second violation, and KRW 7 million for a third violation.
Prohibition and Restriction on Contacting the Debtor After Appointment of a Representative
If a debtor appoints an attorney or another person as a representative to respond to debt collection and notifies the debt collector of this in writing, the debt collector must no longer directly contact or visit the debtor, and all acts of delivering writings, sounds, images, objects, and the like are also prohibited.
A violation of this requirement may result in an administrative fine of up to KRW 20 million.
The debt collector may approach a related person only for the purpose of confirming the debtor’s whereabouts, contact information, or location, and visiting or contacting a related person for any other purpose (for example, conveying the fact of the debt or urging collection) is prohibited.
A violation of this requirement may result in imprisonment for up to one year or a fine of up to KRW 10 million, and if the debtor’s credit information is exposed as a result of the fact being conveyed to a related person, a separate administrative fine may also be imposed.
Prohibition of Assault, Intimidation, and Acts That Induce Fear
In connection with debt collection, a debt collector must not engage in the following acts of physical or psychological coercion.
-Visiting or contacting repeatedly without justifiable cause, or at night (9:00 p.m. to 8:00 a.m.), so as to induce fear or anxiety
-Conveying false facts related to the debt to a third party
-Compelling a person other than the debtor to repay the debt, or publicly disclosing the fact of the debt in a public setting, etc.
Such acts are strictly prohibited under Article 9 of the Fair Debt Collection Practices Act and may be punishable by imprisonment for up to five years or a fine of up to KRW 50 million.
Prohibition of Disclosure of Personal Information and Credit Information
A debt collector must not disclose to others, or use for purposes other than collection, the personal information and credit information of the debtor or a related person learned in the course of collection.
A violation of this requirement is punishable by imprisonment for up to three years or a fine of up to KRW 30 million.
Prohibition of False Representation and Unfair Acts
A debt collector must not engage in the following acts of deceiving the debtor or a related person through false or exaggerated representations.
-Using the name of a state agency such as a court or a prosecutors’ office so as to create a mistaken impression of legal effect
-Pretending that a suit or criminal punishment is underway even though no legal procedure has begun
-Pretending legitimacy by misappropriating the name of another organization without authorization
Such acts of false representation are punishable, depending on the content of the act, by imprisonment for up to three years, a fine of up to KRW 30 million, or an administrative fine of up to KRW 6 million.
In addition, a debt collector must not engage in unfair acts, such as exploiting the debtor’s difficult circumstances or inducing repayment of the debt through excessive methods.
Representative prohibited unfair acts are as follows.
-Inquiring about the debtor’s information from a related person even though the debtor’s whereabouts are not difficult to ascertain
-Imposing communication costs through collect calls
-Continuing collection while knowing that it is prohibited under an individual rehabilitation or bankruptcy procedure
-Urging payment by a method, such as a postcard, that allows outsiders to learn of the fact of the debt
For such acts, an administrative fine ranging from a minimum of KRW 1 million to a maximum of KRW 14 million is imposed depending on the number of violations.
Liability for Damages
If a debt collector causes damage to the debtor or a related person by committing an unlawful act such as those described above, the collector must bear the resulting civil liability for damages.
In addition, because the scope of related persons includes those who live with or share a livelihood with the debtor, relatives, and workplace colleagues, legal liability may also arise toward those around the debtor who are affected by the debt collection.
3. Debt Collection | Procedure
Debt collection generally proceeds through the following stages.
① Verifying the claim and reviewing the extinctive prescription
Before beginning collection, one must first review whether the claim is valid, that is, whether the extinctive prescription has not been completed.
Civil claims are generally subject to a 10-year extinctive prescription, commercial claims to 5 years, and wage claims to 3 years.
However, if there are grounds for interruption (for example, filing a suit or partial repayment by the debtor), the limitations period is extended.
② Investigating the debtor
One investigates the debtor’s actual residence, asset holdings, income situation, and the like.
Through the real estate register, the vehicle registration record, financial transaction information, and the like, one confirms whether there are assets subject to execution, and where necessary, a court fact-finding inquiry or a request for disclosure of information to financial institutions is also used.
③ Demanding repayment and negotiating
Through certified mail, telephone, text message, email, and the like, one requests repayment from the debtor and negotiates installment payment, deferral, and the like.
If consultation with the debtor proceeds smoothly during this process, recovery may be possible through non-litigation methods, saving time and cost.
④ Filing a civil suit or applying for a payment order
If the debtor refuses to repay or cannot be reached, one can obtain a judgment through a civil suit or secure a title for execution through the simplified payment order system.
A payment order proceeds by review of documents, and if the debtor does not object, execution is immediately possible, so it is highly useful when a prompt procedure is desired.
⑤ Compulsory execution
Based on a title for execution such as a judgment, a payment order decision, or a notarial deed, one can apply to the court for compulsory execution against real estate, deposits, wages, vehicles, and the like.
At this stage, it is important to apply in advance for a provisional attachment or provisional injunction to preserve the debtor’s assets.
Subjects of Debt Collection
Civil claims
-A judgment or conciliation protocol confirmed through a civil suit
-A decision on a recommendation to perform
-A payment order decision
-A compensation order in a criminal case
-A notarial deed with executory force
Commercial claims
-A contract prepared for the purpose of a transaction
-A tax invoice, transaction statement, or transaction history
-A bill of lading, receipt, work statement, promissory note, or letter of performance
4. Debt Collection | Matters Creditors Should Note
Let us review the matters that creditors should note regarding debt collection.
▶Prohibition of entrusting collection to an unqualified person
The only parties that may be entrusted with and carry out debt collection are attorneys or credit information companies licensed under the Credit Information Act.
If collection is entrusted to an unregistered business, a broker, an ordinary individual, or the like, the entrustment itself is void and may be subject to criminal punishment.
Moreover, an unqualified collection business is more likely to commit unlawful acts, so the creditor may also bear civil and criminal liability.
▶Confirming the extinctive prescription is necessary
If collection is attempted on a claim for which the extinctive prescription has already been completed, the right cannot be exercised once the debtor raises a defense of the extinctive prescription.
Key Issues in Debt Collection
Debt collection goes beyond a simple matter of money and can be a complex issue in which legal risks and conflicts of rights arise for both creditors and debtors.
From the creditor's perspective, care must be taken not to go beyond the scope of legitimate rights during the collection process.
Delegating collection to an unqualified person or engaging in unlawful collection such as threats or repeated demands may give rise to criminal punishment or liability for damages.
On the other hand, from the debtor's perspective, unconditionally refusing even legitimate collection or neglecting to respond may result in disadvantages such as provisional attachment or compulsory execution.
Because debt collection involves sensitive issues for both sides, it is important to understand the legal procedures accurately and to obtain advice from a professional.
An attorney can not only derive realistic solutions through negotiation with the debtor but can also, when necessary, swiftly proceed with legal procedures and pursue compulsory execution, thereby increasing the practical likelihood of recovering the claim.
Above all, because the entire process is handled through legal means, risks such as unlawful collection can also be prevented, so obtaining the assistance of an attorney is advisable for those who want more reliable and responsible recovery of a claim.
The firm's civil litigation attorneys collaborate with the debt collection center to provide practical assistance throughout the entire process, including lawful collection as well as responses to unlawful collection and the development of negotiation strategies.
