bankruptcy attorneys Alabama

Bankruptcy and Cryptocurrency: What You Need to Know

The relatively new nature of cryptocurrency raises interesting questions when you’re talking about bankruptcy, divorce, and other legal matters. While it is a form of cryptocurrency, it is handled and stored completely differently than more traditional forms of currency—what does this mean for you if you need to declare bankruptcy?

The team at Padgett & Robertson can help. Our extensive knowledge of and experience with bankruptcy allows us to answer your most complex questions. Call us at 251-336-3695 to set up a consultation with our team now.

Cryptocurrency Must Be Declared

One of the biggest misunderstandings regarding cryptocurrency is its traceability. In its early days, cryptocurrency was difficult to trace, and few people understood it. It is now so mainstream that this is no longer the case. While cryptocurrency is harder to locate and trace than conventional currency, it is certainly not impossible to find.

Companies like Coinbase help bankruptcy trustees locate accounts, transfer assets, and create trustee accounts. If you have cryptocurrency, you cannot exclude it from your bankruptcy filing or try to keep it hidden. To do so is bankruptcy fraud and can lead to serious legal problems for you.

Not sure where to declare your cryptocurrency? Discuss it with your attorney. Bankruptcy involves extensive paperwork and documentation, and you do need to include your cryptocurrency just like you would include any other asset.

Trustees May Seize and Sell Cryptocurrency

Cryptocurrency is not handled differently than other assets in bankruptcy. Just like any other assets that go above and beyond what you are allowed to keep, cryptocurrency can be seized, sold off, and used to pay back your debtors. Platforms like Coinbase can even help trustees with this step.

The trustee assigned to your case will look over your assets and income to determine whether or not you qualify for bankruptcy. If your assets exceed what is allowed, they may seize them and sell them.

Another important thing to know: it is not just your current cryptocurrency that you have to worry about. At the time of your filing, you will need to document any assets you have sold or exchanged in the past month. If you fail to do so, the bankruptcy trustee may consider that fraud and dismiss your case.

When Cryptocurrency May Be Exempt from Seizure

It is important to note that you may very well be able to keep your cryptocurrency as you proceed with your bankruptcy case. The majority of filers do not have any assets seized, thanks to exemptions permitted in each state.

While the laws do not specifically address cryptocurrency as an asset, most states do have a wildcard exemption—Alabama included. This exemption allows you to exempt anything not covered under other categories. Alabama’s wildcard exemption allows you to keep up to $8,225 of any personal property, with the exception of compensation. As long as your cryptocurrency is worth less than the current limit, you may be able to keep it.

Your Next Steps

Bankruptcies involving cryptocurrency can be challenging. Cryptocurrency is volatile, so what’s worth $1,000 today could be worth $10,000 tomorrow. Any assets that see a significant change in value throughout the course of your bankruptcy could affect whether or not your debts are discharged. Furthermore, you’ll need to know how best to use exemptions to keep as much of your property as possible.

Your next step should be reaching out to an attorney. Bankruptcy is a complicated process, and any missteps could delay your debt discharge or cause it to be dismissed entirely. With the help of a bankruptcy attorney, you can feel confident that you are giving yourself the best shot at a fresh start. At your consultation, make sure you have information on your current crypto holdings, any transactions you have made in the past 30 days, and estimates of your cryptocurrency’s current value in American dollars.

Explore Your Financial Options with Padgett & Robertson

Are you ready to find out if bankruptcy is the right choice for you? The team at Padgett & Robertson is committed to helping you sort out your options. To set up a free consultation now, just call us at 251-336-3695 or fill out our online contact form.