Bad Bank: “Paying Three Percent of Debt May Get You Off of Defaulters List”

About 1.8 million, or 46.2 percent, of the 3.9 million credit defaulters will likely be bailed out and allowed to bring their financial lives back to normal.

At a briefing at the Korea Federation of Banks headquarters on May 19, Hanmaeum Financial, the so-called bad bank scheduled to be launched officially on May 20 to handle bailout programs for credit delinquents, said, “Those who can apply for the programs will be 1.8 million out of a total of 3.9 million.” It said, “Among the 1.8 million, 1.11 million can end their defaulter status once they deposit three percent of their debts.”

The remaining 690,000 may apply to another program jointly run by Hanmaeum and non-Hanmaeum affiliates to reschedule payments as a way out of credit default.

Hanmaeum put the total amount of debt the possible 1.8 million recipients of its programs have piled up at 21 trillion won. The 1.1 million people who will be immediately bailed out have an estimated 13.5 trillion won in debt.

“If they pay three percent of their debt upfront and make monthly payments in due diligence, interest will be exempted,” said the bank.

Who Can Apply—

Anyone can apply for Hanmaeum’s program if he/she has defaulted on debt from more than two financial institutions of Hanmaeum’s 620 affiliates for a period of longer than one month. Among their defaults, at least one must be six month or older. Their total debt should be less than 50 million won.

The total debt should include defaulted as well as duly-paid loans. For instance, if one has a net total of 30 million won in default and a net total of 30 million won in good debt, his/her total debt will surpass the 50 million won ceiling, disqualifying him/her from the program.

The net total does not include personal loans and unpaid taxes.

How to Apply—

One can apply for the program online at www.badbank.or.kr. In-person application is possible at 14 branches and offices of the Korea Asset Management Corporation and six non-performing loan offices of Kookmin Bank.

Reservations for consultation can be made online as well as over the phone (1588-3570 and 02-2193-0300). One can punch in his/her national ID number at the Web site to find out his/her eligibility.

How to Pay Rescheduled Debt—

The programs offer an eight-year stretch of equal payments or a one-year-deferred, progressively increasing payment plan.

The equal payment program requires fixed monthly payments after the payment of three percent of the debt. The progressive plan allows a one-year deferral with an initial deposit of three percent of the debt and another three percent for the deferral under contract.

The interest rates for both programs are six percent. The interest will be phased out. If they pay the net, all interest payments will be exempted.

Stop Default—

Once one makes the deposit, he/she will be de-listed from the credit defaulters’ lists of Hanmaeum affiliates.

About 690,000 defaulters who have loans from non-Hanmaeum institutions should come up with debt rescheduling programs with those institutions. “For them, we will issue recommendations and proposals for rescheduling their debts.”

However, if one defaults on the debt rescheduled by Hanmaeum for three months or more, he/she should pay all the interest from which he/she was relieved. Also, he/she will have to pay a whopping 17 percent of any remaining balance at the point of default as interest.

Keuk-In Bae Chi-Young Shin bae2150@donga.com higgledy@donga.com