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Cryptocurrency Bankruptcy vs. Normal Bankruptcy

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Cryptocurrency Bankruptcy vs. Normal Bankruptcy

Cryptocurrency Bankruptcy

In recent years, cryptocurrencies have become incredibly popular, and numerous Indiana residents own different types of digital currencies, such as Bitcoin, Ethereum, Tether, and more. Unlike other investments, these currencies are decentralized, have no association with centralized banks, and have no physical form, existing purely in the digital realm. With that being said, cryptocurrency bankruptcy has also become more common.

Due to the unprecedented nature of cryptocurrencies, many wonder whether these digital holdings are exempt during bankruptcy proceedings. In this blog, you’ll learn all about cryptocurrency and bankruptcies, including whether these investments are exempt.

Is Crypto Considered an Asset?

The money you hold in crypto is considered an asset, and no matter how small your crypto balance is, you’ll need to report it when filing for bankruptcy. Like with traditional types of investments, such as stocks and bonds, you must disclose these digital holdings. 

The fact of the matter is that failing to report the full extent of your assets, including crypto assets, will lead to harsh penalties, as this is considered bankruptcy fraud. Those who commit bankruptcy fraud may face a fine of up to $250,000 and up to five years in prison. 

Is There a Difference Between Cryptocurrency Bankruptcy and Normal Bankruptcy? 

Cryptocurrency Bankruptcy

The only difference between a cryptocurrency bankruptcy and a standard bankruptcy is that those with money in crypto need to report the assets. For a standard bankruptcy that doesn’t involve crypto, debtors still need to report all other assets, but they won’t have these digital holdings.

Can I Protect My Cryptocurrency Assets During Bankruptcy?

Those filing for bankruptcy are often able to exempt certain assets, so is it possible to exempt cryptocurrency? 

While no specific exemption protects crypto assets, Indiana filers can guard up to $450 of value in intangible personal property. Intangible personal property includes cash, bank accounts, tax refunds, and cryptocurrency amongst other things cash related.  

cryptocurrency bankruptcy

If you’re already using the intangible property exemption  to protect other intangible personal property, you won’t be able to exempt your crypto assets. 

What Happens During Cryptocurrency Bankruptcy?

cryptocurrency bankruptcy

When it comes to crypto bankruptcies, you list the market value of your digital assets in your bankruptcy petition. The value of crypto shifts rapidly, so when listing your digital assets in your bankruptcy petition, you must value these holdings at the date and time in which you file. 

For instance, let’s say that your Bitcoin balance was worth $5,000 last month but only $4,000 this month due to a dip in the crypto market. While it may be tempting to list your crypto balance as being worth $5,000, this is an inaccurate representation of what your digital investment is now worth. You must list the approximate market value of your assets in cryptocurrency when you’re bankrupt. 

What happens next will depend on whether you file for Chapter 7 or Chapter 13 bankruptcy. With Chapter 7, a Chapter 7 Trustee will liquidate all nonexempt assets. Your bankruptcy trustee could sell off your crypto assets to pay back your creditors. 

Chapter 13, on the other hand, involves filers making regular payments for three to five years to pay back creditors. To determine the duration of your payment plan and monthly payments, you must list all of your financial information, including both wages and assets. 

From there, the bankruptcy court will determine how much you must pay back to creditors based on your disposable income and financial situation, including your crypto assets. You’ll likely be able to keep your crypto assets when filing for Chapter 13, but these digital assets can increase the amount you’ll need to pay back to creditors. 

Contact a Bankruptcy Attorney Today

If you’re considering filing for bankruptcy and have crypto assets, it’s important to get in touch with an experienced bankruptcy attorney. These attorneys know the ins and outs of bankruptcy law and can help you navigate the complexities of Bitcoin bankruptcy and other forms of cryptocurrency bankrupt cases. 

For bankruptcy attorneys serving Indiana, contact Sawin & Shea, LLC. We can help you untangle the intricacies of bankruptcy and keep creditors from harassing you

You can schedule a free consultation with one of our bankruptcy attorneys today by calling 317-759-1483, or you can schedule your appointment online

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