A growing number of people are applying for court-mediated debt workout programs after falling into heavy debt. The global financial crisis that erupted in 2008 prompted many middle-class workers who got laid off to start their own businesses. But many of these ventures have failed and they are falling on hard times again.
According to the Seoul Central District Court, 10,080 people applied for the court-mediate debt workout program already until June this year, a record high. When the program started in 2008, 5,763 people applied, rising swiftly to 13,806 in 2011.
Why is the number increasing four years after the global financial? Experts say the Korean middle class is starting to collapse and this is reflected in court statistics. Middle class households that have managed to hold out seem to be hitting bottom as the recession carries on.
The increase in applicants for debt workout is sending huge ripples across Korean society because it shows just how many people are dropping out of the economically active population.
Unlike personal bankruptcy filings, which involve indebted individuals with no income, debt workout program applicants are unable to service their debts even though they have steady incomes.
A growing number of businesses are also feeling the pinch. According to the Seoul court, 122 companies applied for court-mediated debt workout programs as of June, compared to 190 for all of 2011.
"Companies that were on the edge of bankruptcy after the 2008 global financial crisis have already gone belly-up," said a court official, "and now bankruptcies have spread to mid-sized businesses. It feels like a dyke protecting our economy has broken."