How Much Is Your Cryptocurrency Worth?

We have written recently about the need to disclose all assets when filing for bankruptcy. Assets can include tangible personal property like cars and homes but also cash or investments.

One investment that an increasing number of people own is Bitcoin. Some people use Bitcoin or other cryptocurrencies to make purchases, especially online. However, others view them as investments, believing that their value will increase over time.

Valuation Problems

One problem with cryptocurrencies is valuation. You need to not only disclose your Bitcoin or other cryptocurrencies when filing for bankruptcy, but you also need to provide a value. If necessary, the trustee might take possession of your Bitcoin and convert it to cash to give to your creditors.

As many people know, cryptocurrency values often fluctuate, and wildly. The value of Bitcoin, for example, rises and falls like an airplane that has entered turbulence: staggering climbs and equally dramatic plunges. If you hold Bitcoin or other digital currencies and are planning to file for bankruptcy, please meet with a south Florida bankruptcy attorney to review your situation.

Issues for Bankruptcy

One issue that might arise in a bankruptcy proceeding is whether the debtor transferred Bitcoin or other digital currencies right before filing for bankruptcy. This type of transfer is disallowed as a preferential or fraudulent transfer, and the trustee is empowered to “claw back” the asset. So if a debtor gave her car to her sister right before filing for bankruptcy, then the court can get it back. The same is true if a debtor paid off one creditor in the 90 days before filing for bankruptcy.

The trustee might claw back digital currencies if a debtor transfers them. However, a question arises about how much the digital currency is worth. The trustee is empowered to actually get the asset itself or, if it is a commodity, the value at the date of recovery.

In one case that appeared in bankruptcy court, the debtor transferred Bitcoins before filing for bankruptcy, which the trustee wanted back. However, the value of the Bitcoins had increased by 400% from the date of the transfer, from $363,000 to almost $1.3 million. Was the trustee entitled to $1.3 million to distribute to creditors?

This question typically doesn’t arise with other assets. For example, the value of jewels, gold, or even real estate will not rise that rapidly. Unfortunately, the legal case settled before the judge could bring any clarity to the issue. However, it might arise if you transfer Bitcoin or other digital currencies in the months leading up to your bankruptcy filing.

Speak with an Attorney at Nowack & Olson, PLLC

This is an evolving area of law, and debtors would be well served to have a seasoned bankruptcy attorney who has thought through these legal issues. At Nowack & Olson, our Plantation bankruptcy attorneys stay on the cutting edge of legal developments, and we can use our knowledge to your advantage.

To get started with your bankruptcy case, please contact one of our lawyers to schedule a free consultation. You can reach us at 888-813-4737 or send us an online message.

Resource:

rollcall.com/2020/01/28/courts-without-law-for-guidance-setting-value-of-cryptoassets/

https://www.floridabankruptcynow.com/how-to-get-off-the-debt-treadmill/