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Collecting Even on 23-Year-Old “Zombie Debts”

South Korea is beginning to draw a legal line between the principle that debts should be repaid and the structural predation carried out in that principle’s name.

대법원 판례가 뒤집혔다, 빚 못 갚을 권리가 생겼다 [세상에 이런 법이]

SisaIN · 이지연 다른기사 보기 · 7 June 2026 · read the original in Korean →

What if you borrowed money from a bank, and one day a moneylender contacted you claiming to be your creditor? This is not a story from a film. It is a legally possible reality under the system of assignment of claims. An assignment of claims is a legal act established when the original creditor notifies the debtor that the claim is being transferred to a third party (Civil Act, Article 450). The debtor’s consent is not a condition for its validity.

There is a reason banks hurry to dispose of delinquent loans. If they hold nonperforming loans overdue for three months or more, they must set aside loan-loss provisions, and their BIS capital adequacy ratio, an indicator of financial soundness, also deteriorates. So instead of undertaking collection themselves, banks sell nonperforming loans at prices discounted by more than 50 percent from market value. At first, asset management companies or large moneylenders buy up the claims, but if collection fails or the chance of recovery is judged low, the claims pass again into the hands of smaller, more marginal operators. The more this process repeats, the more the claims drift into regulatory blind spots and become targets for illegal collection. Until before 2017, even public institutions sold nonperforming loans to moneylenders.

Collecting Even on 23-Year-Old “Zombie Debts”23년이 지난 ‘좀비 채권’도 추심

On May 12, President Lee Jae-myung publicly criticized “Sangnoksu First Securitization Specialty Limited Liability Company” at a cabinet meeting. The reason was that this special-purpose company, established in 2003 to clean up the credit-card crisis, was still collecting on claims 23 years later. President Lee called it “primitive predatory finance,” saying, “Tens of millions of won became hundreds of millions.”

Claims that are effectively impossible to recover, yet survive through repeated extensions of the extinctive prescription period, are called “zombie debts.” The limitation period for bank loans or credit-card debts is five years, but whenever those five years are nearly up, creditors mechanically file applications for payment orders or lawsuits, resetting the clock.

On top of this, methods for “reviving” claims whose limitation periods have already expired have also been widely used. A creditor coaxes a debtor who does not know the limitation period has run out by saying, “If you repay just a little, we will cancel the rest of the debt,” and the moment the debtor pays even part of it, treats that as an “acknowledgment of debt” and demands the full remaining amount. This rested on the Supreme Court’s doctrine, maintained for 58 years, presuming waiver of the benefit of prescription (Supreme Court decision 66Da2173). In effect, the courts had been allowing the revival of claims from the creditor’s side.

But on July 24, 2025, the Supreme Court abruptly changed this doctrine in an en banc ruling (Supreme Court decision 2023Da240299). The new precedent requires courts to examine concretely whether the debtor actually knew that the limitation period had expired and expressed an intention to waive that benefit. After 58 years, the balance has tipped toward debtor protection.

The changes did not stop with precedent; legislation followed one measure after another. Two laws in particular stand out. The Act on the Management of Personal Financial Claims and the Protection of Personal Financial Debtors (hereafter the Personal Debtor Protection Act), enacted in January 2024 and implemented on October 17 of the same year, reorganized all procedures after delinquency not around creditors but around a standard of balance between debtor protection and claims management. It included numerous systems to prevent illegal and excessive collection and to reduce debtors’ burdens, such as requests for debt adjustment, limits on overdue interest, and restrictions on assignment of claims.

The Loan Business Act, revised in January 2025 and in force from July, targets the eradication of illegal private lending. It provides that, for ultra-high-interest contracts exceeding 60 percent per annum and antisocial lending contracts conditioned on sexual exploitation, human trafficking, assault, threats, and the like, neither principal nor interest need be repaid. In fact, on May 29, 2025, the Gwangju District Court issued the first ruling based on the revised Loan Business Act, ordering the full return of principal and interest in an illegal ultra-high-interest lending contract carrying annual rates of 1,738 to 4,171 percent (Gwangju District Court 2024Gahap54343).

When President Lee Jae-myung was mayor of Seongnam, he wrote a recommendation for the book A Society That Urges Debt, the Right Not to Repay Debt (Je Yoon-kyung, 2015). “It is important to repay debt well. Repaying debt well does not mean repaying it with another debt at a higher interest rate, or repaying it harshly while giving up the dignity of one’s life. To repay borrowed money well means adjusting it properly to one’s circumstances and repaying it accordingly.”

In that legal standards are at last beginning to be established to distinguish between the principle that people who incur debts must repay them and the structural predation carried out under that principle as a pretext, the present changes deserve to be recorded as more than mere legislation: they mark a turning point in the financial culture of the Republic of Korea.

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