Where a debtor has been judged bankrupt or made a composition with his or her creditors according to the Bankruptcy Act or undergone rehabilitation and liquidation according to the Consumer Debt Clearance Act or has filed for reorganization according to the Company Act, thereby resulting in his failure to fully settle his or her obligations to creditors, the amount difference therefore exempted shall not constitute as a gift as referred to under Paragraph 1, Article 5 of the Act.

The failure to collect debt or exercise other rights of claim that has been verified by proof as referred to under Subparagraph 13, Article 16 of the Act shall refer to the following:
1. Where a debtor has been judged bankrupt or made a composition according to the Bankruptcy Act or undergone rehabilitation and liquidation according to the Consumer Debt Clearance Act or has filed for reorganization according to the Company Act, thereby resulting in creditors’ failure to fully reclaim all or part of the debt, and where a composition agreement or a court ruling has been secured.
2. Where the decedent or the heir and the debtor have jointly reached a litigious settlement or conciliation in court, thereby resulting in creditor’s failure to fully reclaim all or part of the debt, and where the court depositions regarding said settlement or conciliation have been obtained with the absence of matters specified under Subparagraph 1, Article 5 of the Act confirmed true by the taxation authority.
3. Where other reasons have caused failure to collect or exercise all or part of the debt or other rights of claim with relevant documents of proof submitted and confirmed true by the taxation authority.