Supreme Court Rules Reapplication for Individual Rehabilitation Cannot Be Dismissed Solely Based on Past Failures

The Supreme Court has ruled that a history of multiple dismissed or revoked applications for individual rehabilitation in the past is not sufficient, on its own, to conclude that a reapplication has improper motives.

The Supreme Court's First Division (Presiding Justice Cheon Dae-yup) recently overturned the lower court's decision to dismiss the individual rehabilitation application filed by an individual identified as A, and remanded the case to the Daegu Bankruptcy Court.

A had previously filed for the commencement of individual rehabilitation proceedings three times, all of which failed.

The application filed in July 2021 was dismissed for failing to comply with the court's recommendation for amendments. In February of the following year, the rehabilitation proceedings were commenced but later revoked on the grounds that there was no possibility of executing the repayment plan.

In January 2024, A applied for individual rehabilitation proceedings once again and they were commenced, but the proceedings were subsequently revoked because disposable income had not been accumulated properly.

A filed a fourth application to commence individual rehabilitation proceedings in September of last year.

The first instance court dismissed the application, stating that A was filing similar cases for the purpose of obtaining secondary benefits arising from the commencement or progression of individual rehabilitation proceedings.

The court had judged that A might have repeatedly applied for individual rehabilitation to evade attachments or compulsory execution.

A immediately appealed the decision, but the appellate court reached the same conclusion.

However, the Supreme Court pointed out that "it was a mistake to dismiss the appeal by taking issue solely with A's past record."

The Supreme Court stated, "If a debtor has repeatedly applied to commence individual rehabilitation proceedings in the past only for them to be dismissed or revoked, leading to a new application, the court must thoroughly examine circumstances such as the background of those past decisions, the extent to which creditors have recovered their claims since the past decisions, and how the debtor's financial situation has changed."

It further explained, "One must not simply conclude that a debtor has filed an application for improper purposes aimed solely at exploiting the effects of individual rehabilitation proceedings just because the debtor has previously experienced multiple dismissals of applications or revocations of rehabilitation proceedings."

In this case, the Supreme Court noted that A appeared to have earned a regular income while working as a nursing assistant for more than 10 years, and that it was difficult to find any evidence in the record indicating extravagant spending beyond conventional social norms.

Consequently, the Supreme Court stated, "The lower court should have thoroughly examined whether the application was filed for improper purposes by sufficiently reviewing the circumstances behind A's failure to properly deposit funds according to past repayment plans, as well as changes in financial status, including the current status of repayments to creditors," ordering a re-trial and reconsideration of the case.
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