 An Analysis of the PersonalBankruptcy Decisions in Korea (in Korean)Kyeongwon Yoo ()
Economic Analysis (Quarterly), 2006, vol. 12, issue 3, 157-184 Abstract: Although the soundness of household debt in Korea appears to be worse than in the advanced economies, the number of personal bankruptcy filings seems to be much less than it would be considering the size of the population and economy. This implies that only limited use is made of personal bankruptcy in Korea and points to the existence a number of what are effectively individual bankruptcies in Korea, but for this and estimates the size of such informal bankruptcies using the data on debtors who have a history of bad credit and on personal bankruptcy filings. Analysing the household bankruptcy decisions, we try to answer the reason for the recent dramatic increase in personal bankruptcy filings and offer some policy implications in relation to this situation. This paper suggests that personal bankruptcy decisions involve three phases: default, informal bankruptcy, and filing. It has been suggested that the major factors affecting personal bankruptcy decisions include adverse events such as disease and unemployment; financial benefits, option value, and opportunity costs from filing; and the garnishment law. The empirical results show that the probability of filing for bankruptcy is likely to increase as the financial benefit increase and after the debtors had experienced income shocks. Based on these results, firstly, we argue that the government needs to help the poor accumulate financial assets in order to buffer income shocks. Correspondingly, the process and adjudications of bankruptcy in the court have to be applied more liberally to debtors who have actually lost their repayment capacity. Secondly, financial education should be provided for the poor to prevent debtors from falling into the status of informal bankruptcy. Lastly, considering the strategic behavior of debtors, caution should be exercised in changing legislation concerning personal bankruptcy in the future. Keywords: personal bankruptcy; informal bankruptcy; financial benefit (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bok:journl:v:12:y:2006:i:3:p:157-184 Access Statistics for this article Economic Analysis (Quarterly) is currently edited by Wook Sohn, Hwan-koo Kang and Jaerang Lee More articles in Economic Analysis (Quarterly) from Economic Research Institute, Bank of Korea Contact information at EDIRC. |
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