Investment fraud by a debtor who filed for bankruptcy

Scope of discharge in bankruptcy

There are cases where a debtor, instead of repaying the debt, applies for individual rehabilitation or bankruptcy.

For ordinary debts, if individual rehabilitation or bankruptcy proceedings have been completed and a discharge has been granted, the debtor is no longer obligated to repay.

However, taxes, fines, damages for intentional torts, and damages arising from torts that caused bodily harm to another due to gross negligence are not subject to discharge.

In other words, even if a discharge is granted, the debtor is still obligated to compensate for damage caused by a tort.

Therefore, when a debtor applies for individual rehabilitation or bankruptcy, it is important for the creditor to file a criminal complaint against the debtor for fraud and have the debtor criminally punished.

During the legal proceedings, it is highly likely that the debtor will pay a settlement amount to the creditor, and even if no settlement is reached, the creditor can easily secure a legal claim based on a conviction.

Recently, I would like to introduce a case in which Joo Youngjae filed a criminal complaint against a debtor who applied for bankruptcy and received a settlement amount.

Facts of the case

In July 2019, the complainant (the client) invested 30,000,000 Korean won in the debtor's gold trading business in Thailand, based on the debtor's promise to guarantee the principal and pay 1,200,000 Korean won in monthly profits. About a month later, the debtor returned 20,000,000 Korean won of the principal along with the profits, saying the business was delayed.

Trusting the debtor, the complainant, about a month later, immediately transferred 20,000,000 Korean won when the debtor asked for another investment.

However, after paying profits for the first few months, the debtor suddenly stopped paying profits and refused the complainant's demands to return the principal. Soon after, the debtor filed for bankruptcy.

Since the debtor had significant debts and almost no assets, if bankruptcy and discharge were granted, the complainant would receive very little. The complainant, wanting to at least get the investment principal back, sought help from Joo Youngjae.

Joo Youngjae's response

Joo Youngjae analyzed the financial documents submitted by the debtor in the bankruptcy case and discovered that at the time the debtor borrowed money from the complainant, the debtor already had significant debts, and that the money borrowed from the complainant was not used for business purposes but for other purposes such as repaying debts.

Therefore, Joo Youngjae argued that the debtor deceived the complainant about his ability to repay and the use of the investment funds, thereby obtaining a property benefit of 30,000,000 Korean won, and filed a criminal complaint against the debtor for fraud.

Decision of the investigative agency and court

Based on the complaint and opinion written by Joo Youngjae, the police began an investigation and sent the debtor to the prosecution on fraud charges, and the prosecutor formally indicted the debtor.

Shortly afterward, the debtor contacted the complainant to settle, and the creditor was able to receive a settlement amount much larger than the amount of damage.