Nearly 30,000 people have sought debt relief twice — and the number keeps climbing

As the government expands its debt-relief program targeting vulnerable borrowers, nearly 30,000 people have already reapplied for debt restructuring this year after having previously received it.

The surge is partly attributed to an economic slowdown and stagnant incomes that have made it harder for low-income borrowers to honor their repayment agreements. Concerns are growing, however, that repeated debt relief could send the wrong signal — that borrowers can ultimately be rescued even if they do not repay. Calls are mounting for stricter screening of repeat applications to ensure fairness toward borrowers who have diligently paid off their debts.

According to data submitted to People Power Party lawmaker Lee Jong-wook of the National Assembly's Finance and Economy Planning Committee by the Credit Counseling and Recovery Service, the number of people who reapplied for debt restructuring between January and August reached 27,864 — equivalent to 82.6 percent of the full-year total of 33,718 recorded last year.

The Credit Counseling and Recovery Service's debt restructuring program reduces interest rates, extends repayment periods and, depending on repayment capacity, forgives a portion of the principal. Borrowers whose existing agreements have lapsed after four or more missed payments may reapply three months later. Those who have fully repaid their restructured debt but subsequently take on new debt are also eligible to reapply.

Repeat applications have risen fastest among older borrowers. Re-applicants aged 60 and older reached 4,745 through August — already 93.1 percent of last year's full-year figure of 5,099, nearly matching the entire previous year's total in just eight months.

Among borrowers in their 40s and 50s, the core working-age group, re-applicants totaled 15,750 through August, reaching 82.6 percent of last year's full-year figure of 19,079.

Repeat applications among younger borrowers have also been consistently rising. Re-applicants in their 20s or younger and in their 30s climbed from 7,253 in 2022 to 8,751 in 2023, 8,762 in 2024 and 9,540 last year. Through August this year, 7,369 people in those age groups had reapplied, reaching 77.2 percent of last year's full-year total.

Analysts say the growing number of borrowers whose agreements have lapsed — or who have taken on new debt after receiving restructuring — reflects the persistent failure of vulnerable borrowers' income base to recover. Even when the immediate burden of principal and interest payments is reduced, borrowers with no stable employment or income have little choice but to take out new loans to cover living expenses.

"It is like a temporary fix that eases the debt burden for the moment but leaves people struggling again a few months later," said Kang Kyung-hoon, a professor of business administration at Dongguk University. "The economic situation is still difficult, and debt restructuring alone may have its limits."

Yoo Kyung-won, a professor in the Department of Economics and Finance at Sangmyung University, also said that "the ultimate goal of debt restructuring is to support a return to normal economic activity," adding that "alongside debt relief, comprehensive support — including employment, welfare and income-linked programs — is needed to meaningfully improve borrowers' income conditions."

Concerns have also been raised that successive expansions of debt relief could breed moral hazard, with some borrowers deliberately avoiding repayment despite having the means to do so, or holding out for further relief. Borrowers who have cut spending and diligently repaid their debts may come to see repeated restructuring as a form of reverse discrimination.

That is why some are calling for careful case-by-case screening of re-applicants — examining the reasons for reapplication, the borrower's repayment efforts and the purpose of any new debt — rather than uniformly raising the bar for restructuring. Borrowers who took on new debt due to unavoidable circumstances such as insufficient living expenses, illness or job loss should be distinguished from those who repeatedly use the system despite having the ability to repay.

"Repeated debt restructuring inevitably fosters moral hazard and leaves diligent borrowers feeling cheated," said lawmaker Lee. "We must thoroughly review whether previous restructuring agreements were honored and why new debt was incurred, so that responsible borrowers do not feel penalized."

Financial regulators say it is difficult to conclude that moral hazard has spread simply because re-applications have increased. They note that the overall number of applicants has grown as the debt restructuring system has become more established, and that outreach to borrowers whose agreements have lapsed has also intensified.

Total debt restructuring applications rose every year — from 138,202 in 2022 to 184,867 in 2023, 195,032 in 2024 and 209,060 last year. The number of approved cases also increased, from 121,095 in 2022 to 189,062 last year.

"Re-applications have grown alongside the overall increase in total applicants," a financial authority official said. "The pace of growth in re-applications is not significantly outstripping the overall increase."

Clear criteria are needed to help vulnerable borrowers recover while preventing moral hazard, but the government's inclusive finance policy remains at the blueprint stage. The Financial Services Commission launched its Inclusive Finance Strategy Task Force in May, announcing plans to introduce a chief inclusive finance officer at financial institutions and rationalize prudential regulations.

Months after its launch, however, no interim announcements or detailed guidelines have been issued. Some observers suggest that related policies may have slipped down the government's list of priorities — particularly after Kim Yong-beom, the former Cheong Wa Dae policy chief who championed inclusive finance and criticized what he called "cruel finance," recently resigned, and with the national audit season approaching.

Financial regulators say they are continuing to hold working-level meetings by sector and plan to release detailed measures sequentially by year-end — measures aimed at supporting borrowers' recovery while minimizing moral hazard.