Cryptocurrencies & Bankruptcy

Buchalter & Pelphrey Attorneys At Law

Investing in cryptocurrency has taken off like a rocket within the past few years. Although a recent crash in the market might have current and future crypto investors rethinking their investment strategies, those who managed to avoid or withstand the blow might feel bolder than ever to hold the line – and even double down.

Cryptocurrency is often traded as “coins” that are analogous to stocks and other securities, although their value is more or less tied to the overall investment in specific coins, rather than economic output. An important feature of any cryptocurrency, however, is that it’s a digital currency exchanged online without much or any regulation. Unlike the U.S. dollar or any other currency, there is no bank or government that backs or maintains cryptocurrency.

Those who own crypto might be curious about the role it can play should they file for bankruptcy in the future. We’ll address more about this topic below.

Do I Have to Disclose My Crypto in Bankruptcy?
In any type of bankruptcy, a filer must disclose all of his or her assets. These days, that includes crypto. Although crypto is a relatively new type of asset, it’s an asset nonetheless because it can be realized as any other kind of investment.

Essentially, crypto isn’t tantamount to Monopoly money, and bankruptcy trustees are becoming more and more aware of this. Whether you own a small or large investment in crypto, you should be prepared to disclose these assets because the consequences of failing to do so can be more trouble than it’s worth.

For the purposes of disclosure, filers might want to list crypto investments under “other assets” unless otherwise specified or advised by their bankruptcy attorneys.

How Is My Crypto Valued?
One of the most difficult aspects of dealing with crypto in bankruptcy is determining how to value it. This is important because a valuation of your crypto can go either way, as far as reducing or increasing the need for liquidating other property.

Compared to other securities, the value of crypto is more theoretical due to its supply and demand being driven by virtual “mining.” Even so, a bankruptcy trustee will likely attempt to ascertain the “reasonably equivalent” value of your crypto according to the exchange on which it’s traded.

Can I Convert Assets into Crypto or Transfer Crypto Before Bankruptcy?
Any crypto you have must be disclosed during bankruptcy, so attempting to protect your wealth by converting it into digital currency will not work. Authorities may even consider it fraudulent if you fail to disclose your crypto holdings.

Transferring crypto within two years of filing for bankruptcy can raise similar suspicion. If you do this with the intent to defraud, hinder, or delay payment to your creditors, your legal situation can become very complicated.

Should I File for Bankruptcy If I Have Crypto?
You should file for bankruptcy when you are facing overwhelming debt. Bankruptcy has an unfortunately negative perception among many, but it’s actually a useful tool you can use to get out from underneath burdensome consumer debt.

If you have crypto that can be realized, the good news is that liquidating it can help you protect other property during bankruptcy. Things like equity in your home, car, and numerous personal items help you get through the day. It can be hard to lose your investment in crypto, but it can be a lot harder to live without other assets that form the basis of your livelihood.

If you’d like to learn more about exploring your options in bankruptcy, you can contact our experienced lawyers at Buchalter & Pelphrey Attorneys At Law for assistance. When you choose us to represent you in bankruptcy, we can guide you through each step of this process toward a brighter future.

For more information, contact us online.

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