Is Your Cryptocurrency Protected During A Bankruptcy?

Are you about to file for bankruptcy, but you are worried about what happens to the cryptocurrency that you own? You likely will have these questions about this unique legal situation.

Must Cryptocurrency Be Included In A Bankruptcy Filing?

The most important thing to know about bankruptcy is that you must disclose all of the assets that you own. Even though you own a form of currency that is not the American dollar, cryptocurrency is considered a form of property that must be disclosed.

How Is Cryptocurrency Treated During A Bankruptcy?

Many people become confused about how their cryptocurrency will be treated during bankruptcy, as it could be considered an asset or a form of currency. Cryptocurrency is actually considered an asset since you must sell it for it to have a monetary value in USD.

What Happens If Cryptocurrency Is Not Disclosed?

The potential backlash from not reporting cryptocurrency during bankruptcy is that it could be considered a crime. It will be discovered during the bankruptcy proceedings, and the asset will be taken away from you so that it can be liquidated. If it is discovered that you intentionally withheld the asset from your bankruptcy proceeding, then criminal charges could be filed against you and you could face additional penalties under the law.

How Is Cryptocurrency Valued Because It Is So Volatile?

If you have concerns about the value of your cryptocurrency because the price is so volatile, know that it is handled much like stocks that are also volatile. A value will be assigned to the cryptocurrency based on the current price at the time of your filing, which can easily be looked up. This means that there are both positives and negatives to holding cryptocurrencies when filing for bankruptcy. If that asset goes up you could potentially have more than what the cryptocurrency is valued at. If the asset goes down, that asset will not be revalued when determining the distribution of creditors.

Is Cryptocurrency Handled Differently In Chapter 7 And Chapter 13?

In a Chapter 7 bankruptcy, the asset will be liquidated and the cryptocurrency will be lost. In a Chapter 13 bankruptcy, you are not at risk of losing your assets, but the value of the cryptocurrency will determine how much you are capable of paying creditors back. Of course, some states allow people to use an exemption to protect some of their cryptocurrency, which can be used to limit how much of it is factored into bankruptcy.

Speak to a bankruptcy attorney to find out more.