01 Jul 2022 · 2 min read

South Korean Bankruptcy Court Warns of Coming Surge in Crypto-related Cases

Source: AdobeStock / 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 individuals who have fallen foul of crypto investments gone wrong.

Per Newsis, the Seoul Bankruptcy Court warned of a “domino effect” comprising of ailing crypto investors and struggling creditors. And these dominoes are starting to fall, the court added, with more cases expected to hit the courts in the second half of this year.

The court was quoted as announcing:

“The burden on debt of young people in their 20s and 30s – due to failed investment in areas such as cryptocurrency – is increasing day by day. Individual applications for bankruptcies are also increasing.”

It added that many creditors who had lent crypto investors fiat to fund their investments were also likely to follow token traders into the bankruptcy courts in the next few months.

The court said that it had already laid the ground for this coming wave of bankruptcies by launching a new task force to deal with individuals in investment-related cases. It added that there had also been a rise in stock market investment-related bankruptcies.

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

This can lead to cases whereby, the task force explained, individuals “are constrained by the logic that the total amount that debtors have to repay is higher than the losses” that they incur on investments.

The “main goal” of the new rule is not to include losses in stock or crypto investments in bankruptcy-related calculations made by the courts, the media outlet explained.

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

The rule will come into force on July 1, the court concluded.

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