South Korean Bankruptcy Court Warns Of Looming Rise In Crypto-Related Cases

Source: Adobe Stock / Patrick Ryan

South Korean courts are bracing for a wave of crypto-related bankruptcies – and have created a ‘working rule’ that will help them deal with cases involving people who have fallen victim to crypto investments gone bad .

By Newsis, the Seoul Bankruptcy Court has warned of a “domino effect” of struggling crypto investors and struggling creditors. And those dominoes are starting to fall, the court added, and more cases are expected to come to court in the second half of this year.

The court was quoted as announcing:

“The debt burden of young people in their twenties and thirties – due to failed investments in areas such as cryptocurrency – is increasing day by day. Individual claims for bankruptcy are also increasing.

He added that many creditors who had loaned fiat to crypto investors to fund their investments were also likely to follow token traders through bankruptcy courts in the coming months.

The court said it had already set the stage for this next wave of bankruptcies by launching a new task force to deal with individuals in investment-related cases. He added that there had also been an increase in bankruptcies related to stock market investments.

The task force said it had introduced a temporary “working rule” for cases related to crypto and stock market investments. In conventional South Korean bankruptcy cases, the value of an investment is often calculated using projections of the expected future value of an asset at the time of purchase.

This can lead to cases where, the task force explained, individuals “are constrained by the logic that the total amount debtors must repay exceeds the losses” they incur on investments.

The “primary purpose” of the new rule is not to include equity losses or crypto investments in bankruptcy-related calculations made by courts, the outlet explained.

However, the court added that this “working rule” would not apply in cases where individuals attempted to conceal the details of their crypto investments.

The rule will go into effect July 1, the court found.

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Janet E. Fishburn