What happens to my crypto in bankruptcy?

bankruptcy and crypto
crypto and bankruptcy

Even though crypto isn’t directly mentioned in the current bankruptcy laws, bankruptcy laws still apply to crypto. Transferring any asset to hide it from creditors is still a fraudulent transfer. Liquidating crypto to pay one creditor to the detriment of the other creditors may still be a preference.  Crypto in bankruptcy. An experienced bankruptcy attorney can help you decide the best way to handle your assets such as cryptocurrency when looking at filing for bankruptcy protection.

Do I Need To Disclose My Cryptocurrency If I File Bankruptcy?

The quick answer is YES. All assets need to be disclosed when someone files bankruptcy.  Cryptocurrency is a bit different than many assets especially since it can fluctuate minute-by-minute but it is still an asset.  Failing to disclose an asset can lead to numerous problems and even penalties up to and including criminal prosecution for bankruptcy fraud. 

How Will A Bankruptcy Trustee Find and Access My Cryptocurrency?

In the past cryptocurrency was a very obscure asset and many bankruptcy trustees were unaware of what it was.  But now days the bankruptcy trustees know that cryptocurrency is, that its popular as well as possible a valuable asset for creditors.  Bankruptcy trustees routinely ask if you have any crypto assets at the 341 Meeting of Creditors – where they debtor is under oath to tell the truth under penalty of perjury.

Most of my clients now hold their crypto in Coinbase.  If you look on the Coinbase webpage it directs the bankruptcy trustees to a certain protocol that allows them to access the assets they hold and even will provide a trustee with a digital wallet to transfer the coins into.

How Should I Classify My Crypto In Bankruptcy?

Because cryptocurrency does not just neatly fit into one asset category it might be tempting to omit it from the bankruptcy schedules. On one had its almost like case on another it is held like an equity but the modern bankruptcy schedules allow you to list it under deposits or even under the catch all other category.

Can Cryptocurrency Be Claimed Exempt In a Utah Bankruptcy?

Quick answer is NO. Under Utah law there is currently no specific exemption for cryptocurrency. Some assets/investments such as a IRA,  401(k) or pension have specific exemptions to protect the asset in bankruptcy. However crypto is not exempt under the Utah Exemption Code.

How Do I Value My Cryptocurrency in Bankruptcy?

I know it can be difficult to place a value on cryptocurrency but that doesn’t mean you ignore listing it in the paperwork.  Since the price fluctuates rapidly we list it as of the date of the case filing then the trustee is on notice of the asset and can verify its value.

Cryptocurrency is seen in the bankruptcy world as an asset as long as it can be converted into a currency that the bankruptcy trustee can use to pay towards a debtor debts. Using an experienced bankruptcy attorney can help you avoid the many pitfalls associated with bankruptcy and cryptocurrency.

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