When Does an Unpaid Debt Become Criminal Fraud in Korea?

In Korea, failing to repay a loan does not by itself amount to fraud. The question is whether, at the moment the money was obtained, the borrower had the intention and the ability to repay. A person who borrowed in good faith and later could not pay has broken a civil obligation, not committed a crime.

Two people describe the same transaction from opposite sides every week. One says the money was lent and the borrower disappeared and wants to file a complaint for fraud. The other says repayment was intended but circumstances deteriorated. On the facts they are sometimes hard to tell apart. This guide explains where the line actually falls.

1. The relevant moment is when the money was borrowed

The Supreme Court set this out in its decision of 28 April 2016 (2012Do14516). Whether fraud is established must be judged as at the time of the act. If the borrower had the intention and the ability to repay when the money was borrowed, later failure to repay is merely a civil default and does not constitute criminal fraud.

Two points follow. The result — not having repaid — does not by itself make the conduct a crime, and the moment examined is the borrowing, not the default.

2. Where the lender already knew the risk

The same decision goes further. Where the lender and borrower were relatives, close acquaintances or in a continuing business relationship, so that the lender knew the borrower's credit position, and the lender either anticipated or could readily have anticipated that repayment might be delayed or become difficult, then the fact of later non-payment alone does not establish deception or an intent to obtain the money by fraud. That holds unless there is some further circumstance, such as a misrepresentation about the borrower's intention or ability to repay, or about the terms, which were material to the decision to lend.

In other words, where the lender understood the position and took the risk, the risk materialising does not turn the transaction into a criminal case.

3. What actually separates the two

Investigation and trial focus on the borrower's position when the money was obtained. The following are what is examined in practice:

• Financial position and other debts at the time. Was the borrower already unable to repay, or was there a business or income?
• The stated purpose and the actual use. Where the money went somewhere other than where it was said to be going, this is usually the first issue raised.
• What was said about the source of repayment. If the borrower said a sum was about to arrive, did that sum actually exist?
• Security and the loan document. Whether one existed matters less than whether its contents were accurate.
• Conduct after borrowing. Whether any part was repaid, whether contact was maintained, and whether the lender was told when things deteriorated.

None of these is decisive on its own. What they have in common is the question of whether what was said differed from what was true.

4. The penalty went up in December 2025

Article 347 of the Criminal Act was amended on 23 December 2025, raising the statutory penalty for fraud to up to 20 years' imprisonment or a fine up to 50 million won, from the previous 10 years or 20 million won. Computer-use fraud (art. 347-2) and quasi-fraud (art. 348) rose by the same amount. The amendment took effect on the day it was promulgated.

Where the gain is 500 million won or more, article 3 of the Act on the Aggravated Punishment of Specific Economic Crimes applies instead: three years or more where the gain is between 500 million and under 5 billion won, and life imprisonment or five years or more at 5 billion won and above. A fine up to the amount of the gain may be imposed in addition.

5. What a complainant should prepare

The movement of money alone does not make a complaint. Because the case turns on what the borrower said at the time, the first task is to collect what records that: text messages and messenger conversations, the loan document, bank transfer records, and a chronological note of the stated purpose and the promised repayment date.

What was said about the borrower's circumstances when the money was requested matters more than repeated assurances of repayment afterwards.

6. What a person facing a complaint should prepare

The same moment is the focus on the other side. What is needed is material showing that the intention and ability to repay existed when the money was borrowed: income and assets at the time, evidence that the money was actually used for the stated purpose, records of any partial repayment, and anything showing that the lender was told when the position deteriorated.

There is no need to conceal the fact that repayment has not happened. That is not the question being decided.

7. A final point

Loan disputes with the same amount and the same period regularly end in opposite conclusions, and the turning point is sometimes a single document or a single line in a message. The result depends on the individual facts. Contact Taeshin Law Firm for a confidential consultation in English once the records are assembled.