Excluding Stock and Cryptocurrency Loss Compensation... Why Did the Rehabilitation Court Take an Overreach?

Controversy Continues and Spreads Over Debt Investment Promotion and Seoul-Only Application

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[Asia Economy Reporter Kim Hyung-min] Controversy is spreading over the Seoul Rehabilitation Court's ‘exclusion of stock and coin repayment amounts’ policy.

According to the legal community on the 6th, voices criticizing the Seoul Rehabilitation Court's decision are growing, especially on social networking services (SNS) and online communities widely used by stock and cryptocurrency users. Starting this month, the Seoul Rehabilitation Court created and implemented Practice Guideline No. 408, which states that ‘losses incurred by debtors from investments in stocks and cryptocurrencies will not be considered when calculating the total amount to be distributed (repayment amount) upon the debtor’s bankruptcy.’ This completely overturns the previous policy, which strictly required submission of documents proving the market price and value at the time for losses from stocks and cryptocurrencies and included these in the repayment amount. The Seoul Rehabilitation Court explained that this guideline was created to assist young people in their 20s and 30s struggling with cryptocurrency investment failures and in anticipation of a surge in economic collapse and bankruptcy filings by debtors starting in the second half of this year.

The most common criticism is the concern that it may encourage ‘debt investment’ (borrowing money to invest) due to moral hazard. It may cause relative deprivation among those who have incurred debts from investing in other assets and are diligently repaying them, and there are also concerns that individual debts might be covered by taxes, which is problematic. A rehabilitation specialist lawyer stated, "This guideline could significantly reduce the final repayment amount, causing creditors who lend money to worry about losing their money and thus hesitate to lend. This could block financial resources for debtors in their 20s and 30s rather than help them."

There are also counterarguments that facilitating individual debtor rehabilitation and applying the same liquidation value to stocks and cryptocurrencies as to real estate is fair. Baek Ju-seon, Policy Director of the Korea Bankruptcy Rehabilitation Lawyers Association (lawyer), said, "This guideline essentially confirms the principle that the same matters should be treated equally in individual rehabilitation. The causal relationship that this guideline encourages debt investment is not clear. Investment can be speculative, whether in real estate, stocks, or cryptocurrencies." He added, "Rather than the guideline, the system should be improved to catch problems at the initial stage of borrowing. If lending institutions fail to properly assess repayment ability and individuals end up undergoing rehabilitation procedures, the lending institutions also bear responsibility."

Lawyer Baek also said, "The biggest problem may be that this guideline applies only to Seoul." The Seoul Rehabilitation Court has jurisdiction only over Seoul. Although special jurisdiction is granted to cases with many creditors or large amounts, cases in other regions are generally handled by the bankruptcy divisions of district courts. Therefore, this guideline does not apply outside Seoul. The legal community is already raising issues of regional fairness. People in Seoul can exclude large losses from stocks and cryptocurrencies from the amount they have to repay in court, but people in other regions cannot. District courts are also in a difficult position. The Busan District Court, which newly established a personal rehabilitation division within the court starting from the 1st, is reportedly considering discussions on revising the guideline, anticipating strong regional demands to follow the Seoul Rehabilitation Court’s guideline.

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