Debt Relief Applications Rise as South Korean Collectors Raise Concerns
South Korea’s debt collection industry is raising concerns as personal rehabilitation filings and debt adjustment applications climb.
Credit information companies say the government’s focus on illegal private lending has also affected perceptions of lawful debt collection. Industry officials report facing complaints and threats of regulatory reports while carrying out collection activities permitted under existing rules.
Personal Rehabilitation Filings Reach Record Level
South Korea recorded 81,723 personal rehabilitation filings during the first half of 2026, up 13.2% from 72,192 during the same period in 2025.
It was the first time personal rehabilitation filings exceeded 80,000 during a six-month period.
The increase comes as the administration of President Lee Jae-myung focuses on eliminating illegal private lending and reducing the financial burden on debtors.
Industry Draws Line Between Legal and Illegal Collection
Credit information companies are supervised by South Korea’s Financial Supervisory Service (FSS). They must follow rules covering collection practices, including when and how often consumers may be contacted and requirements for visits.
Industry representatives argue that collection carried out under these rules should be clearly distinguished from illegal practices.
One industry official described a case in which a debtor threatened to report the official to the FSS after receiving a collection call. The official expressed concern that such complaints could result in greater regulatory scrutiny even when collectors follow the rules.
Debt Adjustment Applications Rise Nearly 20%
The industry is also watching the growing use of debt adjustment programs.
Under South Korea’s Microfinance Support Act and the Credit Counseling & Recovery Service framework, borrowers may qualify for different forms of debt adjustment depending on their circumstances and length of delinquency. The Individual Workout program generally applies to borrowers who have been in arrears for at least 90 days.
When an adjustment is approved, interest is waived. Part of the principal may also be reduced based on factors including whether the debt is considered recoverable and how the claim is classified for accounting purposes.
The principal reduction can reach 30% when recovery is considered possible and 70% when recovery is considered impossible.
Data from the Credit Counseling & Recovery Service showed 240,898 individual debt adjustment applications during the first half of 2026. That was 19.3% higher than the 201,783 applications recorded during the same period in 2025.
Industry Raises Concerns About Repayment
Financial industry officials say the continued growth of debt adjustments could have broader effects on borrowers who repay their debts as agreed.
They argue that if financial companies expect to recover less from delinquent accounts, that additional risk could eventually be reflected in lending rates.
One industry official also warned against creating the impression that borrowers can stop repaying debt and later receive a reduction through government programs. The official argued that this could disadvantage people who continue to meet their repayment obligations.
The debate comes as South Korea balances efforts to provide debt relief with concerns from regulated collection companies about their ability to pursue legitimate debts.
