The ruling party and the government agreed Wednesday to write off long-overdue small debts for those who are incapable of reimbursement in a bid to curb household debts and spur consumption.

Liabilities of 10 million won ($9,230) or less that are overdue for 10 years or more will be canceled for people who the authorities find do not have the ability to pay back their debts. 

“We plan to immediately stop debt collection and cancel the debts within a certain period of time for those who are deemed incapable of repaying their debts after a scrupulous screening process,” Kim Tae-nyun, chief of the Democratic Party of Korea’s policy committee, said in a press briefing after a policy coordination meeting.

“In order to minimize long overdue debts, we will take steps to tighten regulations on lenders as well as collection and sale of bad debts.”

It is estimated that about 1.59 million people have debts of 10 million won or less that have been overdue for 10 years or more.

Those who do not have any assets to collect and earn less than 990,000 won a month will be considered incapable of reimbursement.

Choi Jong-ku, chairman of the Financial Services Commission, said that such people would account for more than half of 1.59 million debtors.

Choi stressed in a press briefing that the government will make efforts to prevent people from taking advantage of the move.

“Only the really vulnerable debtors who are utterly incapable of standing on their own will be selected. After stopping the debt collection, there will be a grace period of three years until the debts are canceled so we can do another screening,” Choi said.

“Those who hide assets or income to get government aid will be subject to severe disadvantage.”

By Kim So-hyun (sophie@heraldcorp.com)