When filing for bankruptcy, you are required to list all your debts, including what you owe to creditors, as well as all your assets, which are the properties you own with real value, on the official forms. Virtual currency often escapes notice as a reportable asset, but you must report it if you own or have owned virtual currency, as it is relevant in bankruptcy proceedings.
What Counts as “Virtual Currency” in Bankruptcy?
Virtual currency is a broad term. Most people think of Bitcoin or Ethereum, but it can also include stablecoins and other cryptocurrencies and crypto tokens that can be bought, sold, or transferred. Not every digital item or platform credit is “virtual currency,” but some may still need to be disclosed as assets.
No matter what the virtual currency is called and where it is being held, the bankruptcy court doesn’t treat it like “play money.” The court generally views it the way it views stocks or other property with value.
That doesn’t mean you will lose it. It means it has to be disclosed so the bankruptcy trustee can apply the rules correctly.
Why Full Disclosure is Required
In bankruptcy, you sign your paperwork under oath. In the initial forms, you must list all income you receive, debts you owe, and assets you own. The bankruptcy court uses the information on those forms to determine the next steps in your case. This includes deciding which property to protect, which debts to discharge, and whether to proceed with the case.
Virtual currency draws extra attention because it’s easy to overlook. Many people have small balances or accounts they haven’t checked in a long time. Others have traded frequently and lack clear records. However, failing to report the asset can have serious consequences, including losing your bankruptcy discharge.
Trustees also pay attention to transfers. Moving virtual currency right before filing, especially moving it to a friend, a relative, or a “new” wallet, can raise questions. Even if your intent wasn’t bad, it can look like you were trying to keep assets out of sight. Transfers may also trigger “lookback” rules that allow a trustee to unwind certain transactions. This doesn’t mean you can’t sell or convert virtual currency before filing. It just means you must manage it properly, document it accurately, and report it fully when filing to avoid jeopardizing your case.
How Virtual Currency Valuation Affects Bankruptcy
One of the biggest challenges with virtual currency is price swings. In bankruptcy, a trustee typically values assets as of the filing date. With cryptocurrency, the value can change by the hour, and different exchanges can show different prices.
The bankruptcy court needs data as close as possible to the bankruptcy filing date, such as the latest exchange statement, a snapshot of the market price, or records from the platform where you hold the asset. The goal isn’t perfection down to the penny; it’s to provide a good-faith value supported by documentation for the trustee.
Virtual Currency in Chapter 7 and Chapter 13
In Chapter 7, the trustee reviews assets to identify any non-exempt value available to pay creditors. Certain assets are protected by exemptions, while others are not. The trustee might not pursue virtual currency if it is entirely protected. However, if it lacks protection, the trustee may seek court approval to liquidate it through specific procedures, converting it into estate funds to pay back your creditors.
In Chapter 13, you’re usually on a repayment plan. Virtual currency must still be disclosed, and changes in assets or income can affect the plan. Also, if you continue trading during a Chapter 13 case, those transactions can complicate matters. It’s not that you automatically “can’t”, but the bankruptcy court expects transparency throughout the plan.
How a Bankruptcy Lawyer Helps with Virtual Currency Issues
Virtual currency adds moving parts to a process that already has deadlines and rules. A bankruptcy attorney can help you figure out what needs to be listed, how to value it reasonably, what documents to gather, and how to avoid actions that can create unnecessary suspicion.
If you’re considering bankruptcy and you own virtual currency, or you’ve traded it in the recent past, Brock & Stout’s bankruptcy attorneys can help you handle it the right way. Contact us for a free consultation. We will review your situation, explain your disclosure requirements, and guide you through the process to keep your case on track.
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