Cryptocurrency and Bankruptcy in Minnesota
Cryptocurrency has grown from a niche product into a significant consumer investment. Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies are increasingly popular. According to NASDAQ, there are around 46 million Americans who own Bitcoin. Bankruptcy lawyers have ways of helping you keep cryptocurrency in bankruptcy, but there are limits to how much.
What happens if someone who owns bitcoin files for bankruptcy? We’ll go through that in this post:
- Should I Disclose My Cryptocurrency in Bankruptcy?
- Can a bankruptcy trustee access my cryptocurrency?
- In bankruptcy, how do I value my cryptocurrency?
- Is my cryptocurrency bankruptcy eligible?
Should I Disclose My Cryptocurrency in Bankruptcy?
Yes, it is possible. Even though the value of cryptocurrencies fluctuates drastically from day to day (or minute to minute), they are unquestionably an asset. Debtors are legally required to disclose all of their assets, even those that are difficult to value. Failing to uncover security can result in heavy fines, including bankruptcy fraud charges.
Every investment must be disclosed under the new rules. A digital wallet is where cryptocurrencies are kept. A private key is required to access a digital wallet. This implies that if the trustee wants to access the value of crypto assets, the debtor must collaborate with them.
Can a bankruptcy trustee access my cryptocurrency?
Cryptocurrency was a relatively obscure item in its early years. Many trustees, no doubt, were unfamiliar with it at the time. Now that cryptocurrency is more popular, it is getting more notice. In 2021, Coinbase, a central crypto trading platform, went public. It’s safe to assume that Coinbase is aware because it has a bankruptcy trustee webpage. Trustees can use Coinbase to find specific borrowers’ crypto assets, offer trustees digital wallets to store and transfer cryptocurrency, and freeze accounts, among other things.
Given that cryptocurrency may be sold for real money, it is an asset that can be readily liquidated once the trustee has control over it. The cash generated by this sale may then be shared among the creditors.
In bankruptcy, how do I value my cryptocurrency?
It isn’t easy to place a value on cryptocurrency. The price of any single cryptocurrency might fluctuate unpredictably. Assets with little worth when a debtor files their petition may see a significant boost in value afterward—and vice versa. Cryptocurrency is usually protected in bankruptcy up to a certain dollar amount, depending on what other items you own at the time. It is your lawyer’s job to figure out what everything you own is worth and make sure that it can be protected. Most cryptocurrencies trade vis a vis dollars at all times and so it’s easy to figure out what they are worth on any given day.
A trustee in bankruptcy will seek to sell any assets that may be sold to pay creditors. A crypto purchase with little value at the time of filing might see a substantial increase in worth by the time creditors are called. This implies that exemptions intended to protect the asset may have been used elsewhere, leaving it exposed.
The value of something for bankruptcy in Minnesota is determined by whatever it is worth on the day that your case was filed. This gives a useful measuring point because most cryptocurrencies trade on exchanges and the exchanges keep records of the closing price every day. This gives you some certainty about what your cryptocurrency will be worth after filing. If it takes off in value later, then you don’t have to worry about the bankruptcy court coming back to ask for it.
Can I keep my cryptocurrency if I file bankruptcy?
Often yes, but that depends a little bit on what else you own at the time. In Minnesota, you it’s not protected if you also own a house. If you don’t own a house, then you can protect about $13,000 of cryptocurrency in bankruptcy. What if you are over on that amount? There are still options, but please talk to a lawyer before you do anything with the money. It’s safest to let things sit until a lawyer can make a plan to get you through bankruptcy with the best net worth possible. That’s our job!