"Excluding Stock and Cryptocurrency Investment Losses from Debtor's Repayment Statement"... Controversy over Seoul Bankruptcy Court Guidelines

On the 7th, as the virtual currency prices continue to decline, the price status board showing Bitcoin and other virtual currency prices is displayed at the Bithumb Gangnam Customer Center in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kim Hyung-min] The Seoul Rehabilitation Court has established a work guideline from this month to exclude losses from stock and cryptocurrency investments when calculating the amount a debtor must repay, sparking criticism that it encourages "debt investing (debt-financed investing)."

According to the legal community on the 5th, the Seoul Rehabilitation Court began enforcing "Seoul Rehabilitation Court Practice Guideline No. 408" this month, explaining that "the amount of losses or their scale will not be considered when determining the total repayment amount."

In other words, losses are not considered when determining the "liquidation value," which is different from the repayment amount. The guideline states, "Losses incurred by the debtor from investments in stocks or cryptocurrencies should not be considered when calculating the total amount to be distributed to creditors upon the debtor's bankruptcy."

There is a principle of guaranteeing liquidation value in personal rehabilitation procedures. The total amount repayable through the personal rehabilitation process (repayment amount) must be greater than the liquidation value, which is the total amount creditors would receive upon the debtor's bankruptcy. This is because by undergoing rehabilitation, the debtor should be able to repay creditors at least a little more than in bankruptcy.

For example, if Mr. A owns assets worth 10 million won and borrowed 100 million won to invest entirely in cryptocurrency, which then plummeted in value to 1 million won, under this guideline, Mr. A's liquidation value would be 11 million won, not 110 million won.

The court will approve the rehabilitation plan if it judges that the total repayment amount Mr. A can pay, based on present value, exceeds the liquidation value of 11 million won. Mr. A only needs to repay the amount specified in the rehabilitation plan, and the remaining debt will be forgiven.

However, criticism is growing mainly in online communities against this guideline by the Seoul Rehabilitation Court. People question why the court is stepping in to rescue those who borrowed money to invest in cryptocurrencies and other assets.

Those who did not invest in highly volatile assets like cryptocurrencies or who invested only within their means and bear their own losses inevitably feel a sense of deprivation. Additionally, the fact that creditors cannot recover the value of cryptocurrencies held by the debtor if their value rises after the rehabilitation plan is approved is also criticized.

This content was produced with the assistance of AI translation services.