If a Landlord Goes Bankrupt and Is Discharged, How Far Does a Security Deposit with a Right to Preferential Payment Survive: Five Questions on Debtor Rehabilitation and Bankruptcy Act Amendment Bill No. 2216282

The bill read and the status confirmed

This entry reads Bill No. 2216282, a partial amendment bill to the Debtor Rehabilitation and Bankruptcy Act. The bill is listed as proposed by Assembly Member Yeom Tae-young and 10 others on January 23, 2026, during the 431st (extraordinary) session of the National Assembly. The committee with jurisdiction is the Legislation and Judiciary Committee. As at the reference date of October 16, 2026, the National Assembly progress table records referral on January 26, 2026 as the last step. The parts read are the reasons for the proposal and main contents shown on screen, and the reasons for the proposal, the amended provisions, the Addenda and the comparative table of current and amended provisions in the original bill PDF.

Other bills address the same problem. Bill No. 2213186 (Assembly Member Han Chang-min and 11 others, proposed on September 23, 2025) is shown as having been placed on the agenda of the plenary meeting of the Legislation and Judiciary Committee on July 27, 2026 and referred to a subcommittee. Bill No. 2217769 (Assembly Member Choi Ki-sang and 9 others, proposed on March 26, 2026) is shown as being at the referral stage. This entry read only the on-screen summaries of those two bills and not their original provisions, so even where a comparison is needed, it reports only what the screens state. Whether the three bills will be combined into a committee alternative cannot be determined from the screens as at the reference date.

Sources for this section: National Participatory Legislation Center, National Assembly Legislative Status: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Participatory Legislation Center, National Assembly Legislative Status: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2213186) · National Participatory Legislation Center, National Assembly Legislative Status: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2217769)

What the current provisions and two Supreme Court judgments establish

As at the reference date, Article 415 (1) of the Debtor Rehabilitation and Bankruptcy Act provides that a lessee who has satisfied the requirements for opposability under the Housing Lease Protection Act and obtained a fixed date has the right to receive repayment of the security deposit out of the proceeds of realisation of a house belonging to the bankruptcy estate in priority to junior right holders and other creditors. Paragraph (2) deals in the same way with a certain amount of a small-sum lessee's security deposit, and paragraph (3) with lessees of commercial buildings. Article 586 applies Articles 411 through 415 mutatis mutandis to individual rehabilitation procedures. Article 411 grants a right of separate satisfaction to persons holding a right of retention, a pledge, a mortgage, and the like.

Claims that are not discharged are listed, for bankruptcy, in the subparagraphs of the proviso to Article 566 and, for individual rehabilitation, in the subparagraphs of the proviso to Article 625 (2). Both lists include taxes, fines, damages for intentional torts, employees' wages, and the like, but neither includes claims for the return of a lease deposit. Article 3-2 (1) of the Housing Lease Protection Act governs the case in which a lessee applies for an auction of the leased house on the basis of a title of execution such as a final judgment in an action for the return of the security deposit, and paragraph (2) provides for the right to preferential payment of a lessee who has satisfied the requirements for opposability and obtained a fixed date.

In Supreme Court Decision 2014Da32014 rendered on January 12, 2017, a case governed by the former Individual Debtor Rehabilitation Act, the Court held that, because a lessee may obtain satisfaction outside the individual rehabilitation procedure within the limit of the right to preferential payment, the effect of the discharge decision does not extend to the part of the claim for the return of the security deposit to which the right to preferential payment attaches. In Supreme Court Decision 2022Da247378 rendered on June 12, 2025, the Court held that, because Article 566 does not designate this claim as a claim excluded from discharge in bankruptcy procedures, the effect of the discharge decision extends to the entire claim for the return of the security deposit, including the part covered by the right to preferential payment, and that once the discharge decision has become final, the lessee may only assert the right to preferential payment against the proceeds of realisation if the house is later realised, and may not sue the debtor for performance.

The reasons for the proposal cite the earlier judgment as 2014Da32104. No judgment was found under that number on the National Law Information Center, and a judgment of the same date and content is published as 2014Da32014. According to the on-screen summaries, Bill Nos. 2213186 and 2217769 cite it as 2014Da32014. This entry follows the published number.

Sources for this section: National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026) · National Law Information Center, current Housing Lease Protection Act (Act No. 21065, effective January 2, 2026) · Supreme Court Decision 2014Da32014 rendered on January 12, 2017 (original text of the judgment, National Law Information Center) · Supreme Court Decision 2022Da247378 rendered on June 12, 2025 (original text of the judgment, National Law Information Center) · Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282)

What the bill seeks to change

Proposed Article 566, subparagraph 7-2 adds to the claims excluded from discharge in bankruptcy the part, falling within the scope of the right to preferential payment, of a claim for the return of a lease deposit to which a right to preferential payment attaches under Article 415 (1) or (2). Its proviso excludes cases in which the house or commercial building concerned has been realised in the bankruptcy procedure and the right to preferential payment has been exercised. Proposed Article 625 (2), subparagraph 9 adds to the claims excluded from discharge in individual rehabilitation claims for the return of a lease deposit to which a right to preferential payment attaches under Article 3-2 (2) or Article 8 of the Housing Lease Protection Act, or Article 5 (2) or Article 14 of the Commercial Building Lease Protection Act.

Proposed Article 415-3 allows a lessee to whom a right to preferential payment attaches under Article 415 (1) or (2) to apply for an auction of a house or commercial building belonging to the bankruptcy estate where six months have passed since the date of the declaration of bankruptcy and no holder of a right of separate satisfaction under Article 411 has applied for an auction. The documents to be attached to the application are left to Supreme Court Regulations; the court must order the bankruptcy trustee to submit an opinion, and the trustee must submit it within two weeks of receiving a copy of the application. The provisions of the Civil Execution Act on auctions for the enforcement of security rights apply mutatis mutandis to the auction, and the right to apply for an auction may be exercised even after the bankruptcy procedure has been discontinued or concluded, but may not be exercised once the discharge decision has become final.

Article 1 of the Addenda provides that the Act enters into force six months after the date of its promulgation, and Article 2 provides that, for cases pending at the time of entry into force in which six months have already passed since the declaration of bankruptcy, the auction application provision applies from the date on which six months have passed since the date of entry into force. Article 3 provides that the former provisions govern where the discharge decision became final before entry into force, and that the new discharge-exclusion provisions govern bankruptcy or individual rehabilitation cases pending at the time of entry into force.

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282)

Is the different wording of the non-dischargeable scope in bankruptcy and individual rehabilitation intentional?

The reasons for the proposal explain that, in both procedures, the claim to the extent of the lease deposit covered by the right to preferential payment is to be made a non-dischargeable claim. On the bankruptcy side, proposed Article 566, subparagraph 7-2 follows that explanation and refers to the part falling within the scope of the right to preferential payment. On the individual rehabilitation side, however, proposed Article 625 (2), subparagraph 9 refers only to claims for the return of a lease deposit to which a right to preferential payment attaches, so its wording is open to being read as covering the entire deposit-return claim of a lessee holding a right to preferential payment.

On that reading, in individual rehabilitation the remaining deposit that cannot be recovered through the right to preferential payment would also not be discharged, going beyond the limit of the right to preferential payment that judgment 2014Da32014 placed outside the discharge. The same lessee would be protected only in part if the landlord goes bankrupt but in full if the landlord enters individual rehabilitation, so the difference between the procedures that the reasons for the proposal seek to remove would remain, only reversed in direction. The realisation proviso on the bankruptcy side is also absent on the individual rehabilitation side.

The way the underlying provisions are cited also differs. The bankruptcy side refers to Article 415 of the Debtor Rehabilitation and Bankruptcy Act, while the individual rehabilitation side refers directly to provisions of the Housing Lease Protection Act and the Commercial Building Lease Protection Act. Because Article 415 states the requirements for opposability by reference to Article 3 (1) of the Housing Lease Protection Act, it also needs to be checked whether the same lessee could fall within only one of the two formulations. Should the individual rehabilitation wording be aligned with the bankruptcy wording as the part falling within the scope, or is non-dischargeability of the entire claim intended?

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026) · Supreme Court Decision 2014Da32014 rendered on January 12, 2017 (original text of the judgment, National Law Information Center)

Where the house has not been realised, what determines the scope of the right to preferential payment?

The right to preferential payment is a right to receive payment out of the proceeds of realisation according to rank. If discharge becomes final while the house remains unsold, the amount of the part falling within the scope of the right to preferential payment has, in effect, not yet been determined. The secured amount of senior mortgages, the market value of the house, and the amount payable with top priority to small-sum lessees may all change, yet the bill does not specify at what point in time or on what value that scope is to be calculated.

The proviso to proposed Article 566, subparagraph 7-2 excludes cases in which the property has been realised in the bankruptcy procedure and the right to preferential payment has been exercised. This proviso reads as meaning that the deposit remaining after distribution from the proceeds of realisation is discharged. The provision does not state, however, whether a case in which a holder of a right of separate satisfaction conducts an auction for the enforcement of security rights outside the bankruptcy procedure and the lessee receives a distribution in that auction counts as realisation in the bankruptcy procedure, or whether, when the distribution covers only part of the deposit, the remainder is thereby fixed as falling outside the scope.

If the scope is disputed in an action brought by the lessee against the debtor for performance after discharge has become final, on what basis should the court decide, and should the words "in the bankruptcy procedure" in the realisation proviso include an auction by a holder of a right of separate satisfaction?

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · Supreme Court Decision 2022Da247378 rendered on June 12, 2025 (original text of the judgment, National Law Information Center) · National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026)

What force does the bankruptcy trustee's opinion have on a lessee's auction application?

Proposed Article 415-3 permits a lessee to apply for an auction where six months have passed since the declaration of bankruptcy and no holder of a right of separate satisfaction has applied for an auction. The six-month period and the requirement that no holder of a right of separate satisfaction has applied read as devices for giving prior respect to the trustee's preparations for realisation and to the choice of the security holders. The bill does not address, however, whether a lessee's auction application blocks a private sale the trustee is already pursuing, or whether the court may refuse the application in accordance with the trustee's opinion.

Paragraph (3) merely requires the court to order the trustee to submit an opinion and the trustee to do so within two weeks; it does not set out the effect of an opposing opinion or the criteria for the court's decision. Paragraph (4) applies mutatis mutandis the provisions of the Civil Execution Act on auctions for the enforcement of security rights, but because the lessee is not a security holder, what is to count as proof of the existence of a security right, and how the portion of the auction proceeds ranking below the lessee returns to the bankruptcy estate, are also left to Supreme Court Regulations or interpretation.

Does the trustee's opinion bind the court's decision whether to commence the auction, or is it merely for reference, and which takes precedence when the trustee's realisation plan conflicts with the lessee's auction application?

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026)

The right to apply for an auction lapses once discharge becomes final; by what means is the remaining deposit then recovered?

The proviso to proposed Article 415-3 (5) provides that the right to apply for an auction may not be exercised once the discharge decision has become final. At the same time, proposed Article 566, subparagraph 7-2 places the deposit within the scope of the right to preferential payment outside the discharge. Read together, the two provisions produce a two-stage structure: recovery through an auction under Article 415-3 before discharge becomes final, and through an action for the return of the security deposit and an auction under Article 3-2 (1) of the Housing Lease Protection Act after discharge becomes final. The bill materials do not explain this structure.

Problems may also arise at the seam. The provision does not make clear whether an auction applied for and pending before discharge becomes final continues after discharge becomes final, or whether the words "may not be exercised" bar only new applications or also halt pending proceedings. Nor is it clear from the wording which route is to be used where the bankruptcy procedure has ended and the house has remained with the debtor, as opposed to where it still belongs to the bankruptcy estate.

Should a pending auction be allowed to continue after discharge becomes final, and should a mechanism be provided to reduce the duplication of proceedings whereby a lessee must, after discharge, bring an action and then apply for an auction again?

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Law Information Center, current Housing Lease Protection Act (Act No. 21065, effective January 2, 2026) · Supreme Court Decision 2022Da247378 rendered on June 12, 2025 (original text of the judgment, National Law Information Center)

Does the lessee's right to apply for an auction carry over to individual rehabilitation?

Proposed Article 415-3 applies to houses or commercial buildings belonging to the bankruptcy estate, and its requirements are framed by reference to the declaration of bankruptcy and holders of a right of separate satisfaction. Current Article 586 applies Articles 411 through 415 mutatis mutandis to individual rehabilitation, treating the bankruptcy estate as the individual rehabilitation estate and the declaration of bankruptcy as the decision to commence individual rehabilitation procedures. Because the new provision is Article 415-3, it is unclear from the wording whether it falls within the range of mutatis mutandis application of Articles 411 through 415, and the bill does not amend Article 586.

The reasons for the proposal cite the non-discharge provision and the right to apply for an auction together, speaking of protecting lessees and of equity between the two procedures. In individual rehabilitation, non-dischargeability is secured by case law and proposed Article 625 (2), subparagraph 9, but the bill gives no answer as to whether, while the repayment plan is being carried out, the lessee may apply for an auction of a house in the individual rehabilitation estate. Should the right to apply for an auction apply mutatis mutandis to individual rehabilitation, and, if so, how is it to be reconciled with the performance of the repayment plan?

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026)

Commencement and remaining issues

Article 1 of the Addenda proposes that the Act enter into force six months after the date of its promulgation. This is a proposed condition, not a fixed date. Because Article 3 (2) of the Addenda applies the new discharge-exclusion provisions to bankruptcy and individual rehabilitation cases pending at the time of entry into force, the expectations of debtors and other creditors who anticipated discharge when the procedure began will change after entry into force. By contrast, under paragraph (1), lessees whose landlords' discharge has already become final, as in the case decided in judgment 2022Da247378, remain governed by the former provisions.

The remaining issue is how to reconcile the three bills on the same subject. Even from the on-screen summaries alone, Bill No. 2213186 proposes applying the provisions on the right of separate satisfaction mutatis mutandis, while Bill No. 2217769 proposes granting the right to apply for an auction to lessees meeting certain requirements. Whether the right to apply for an auction should be set out in a separate provision or treated by analogy to the right of separate satisfaction, and whether it should also be provided for in individual rehabilitation, are matters to be settled in committee review, and this entry does not predict the outcome.

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Participatory Legislation Center, National Assembly Legislative Status: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2213186) · National Participatory Legislation Center, National Assembly Legislative Status: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2217769) · Supreme Court Decision 2022Da247378 rendered on June 12, 2025 (original text of the judgment, National Law Information Center)

What this entry has not verified

The review reports and minutes, the original provisions of Bill Nos. 2213186 and 2217769, lower-court judgments, the provisions of the Commercial Building Lease Protection Act, and the provisions of the Civil Execution Act on auctions for the enforcement of security rights were not read. Because judgment 2014Da32014 applied the former Individual Debtor Rehabilitation Act, it has not been read as carrying over directly to current Article 625. The current provisions were checked against the original text on the National Law Information Center, and Chinese characters mixed into the original text were not reproduced.

This entry neither supports nor opposes the bill and does not recommend legislation. The questions are confined to the original text of the bill, the current provisions and the text of the judgments, and no prediction is made as to how the bill will be dealt with.

Sources for this section: Original bill PDF: Partial Amendment Bill to the Debtor Rehabilitation and Bankruptcy Act (Bill No. 2216282) · National Law Information Center, current Debtor Rehabilitation and Bankruptcy Act (Act No. 21490, effective October 2, 2026) · Supreme Court Decision 2014Da32014 rendered on January 12, 2017 (original text of the judgment, National Law Information Center) · Supreme Court Decision 2022Da247378 rendered on June 12, 2025 (original text of the judgment, National Law Information Center)