Courts look to write off crypto debts to avoid personal bankruptcies

Debt-ridden crypto investors could receive an unexpected lifeline.

Courts in South Korea will use a new set of guidelines in rehabilitation hearings to write off people’s crypto debts in an attempt to stop citizens from going bankrupt.

The new rules will see three courts, opened this month in the cities of Daejeon, Daegu, and Gwangju, exclude debts incurred from stock or cryptocurrency investments from liquidation calculations.

And this, in turn, will reduce the overall amount debtors need to pay their creditors in personal rehabilitation proceedings, South Korean media outlet EToday reported.

The new rules are the South Korean authorities’ latest attempt to get the country’s rampaging debt problem under control.

The country’s household debt-to-GDP ratio has risen to 92% in 2025. The government has vowed to act, promising to cap household debt growth at 3.8%.

The new initiative comes after the government courted public criticism in December by providing 269 individual crypto traders with over $15 million in debt relief from a fund intended to help small companies.

It is against this backdrop that the three new rehabilitation courts are set to write off crypto traders’ debt, despite public criticism.

Easing debt burdens

The first rehabilitation court was opened in Seoul in 2017, as part of a government drive to restructure insolvent individual firms’ arrears and provide debt relief.

The three courts will work alongside the Seoul court and two more branches opened in the cities of Suwon and Busan in 2023.

The Suwon and Busan courts have already begun classifying some individuals’ crypto and stock market-related investment losses as “general property” losses rather than “speculative debts.”

This, the courts say, has helped many people ease the burden of repayments in their personal rehabilitation proceedings.

But bad crypto investments are proving increasingly troublesome in bankruptcy cases.

In 2024, Lee Seok-jun, a Seoul Bankruptcy Court judge, called on the government to create more regulations to protect crypto investors.

The Seoul Rehabilitation Court says its case load has increased by almost 13% since 2023. The capital’s branch said it handled around 28,000 cases last year.

Unnamed critics told EToday that sweeping measures to write off investment losses could lead courts into moral difficulties.

But courts said they will be on their guard against investors who try to deceive them.

The Daegu Rehabilitation Court said it would punish any debtor who “intentionally conceals” their crypto purchases by “disguising them as failed investments.”

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at [email protected].