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What happens to cryptocurrency in bankruptcy?

On Behalf of | Feb 13, 2023 | Bankruptcy |

Cryptocurrency used to be a somewhat niche asset with only a handful of investors. Today, however, polls indicate that 20% of adults in the United States have invested in or used cryptocurrency in some way, making it increasingly relevant in legal situations. One legal area which may bring up particular questions for Michigan cryptocurrency owners is bankruptcy. Here is some information on this topic that may be relevant for those considering filing with these assets in their portfolio. 

Are there any exemptions for cryptocurrency when filing for bankruptcy? 

Cryptocurrency is not specifically named as an exemption in a bankruptcy filing. However, it may be included in other exemptions. For example, in Federal bankruptcy, there is a “wildcard” exemption of $15,420 in personal property, which applies to anyone not taking advantage of the homestead exemption. A debtor may choose to include crypto holdings as part of this exemption. 

What are the disclosure and valuation rules for cryptocurrency in bankruptcy? 

As with any asset, crypto holdings must be disclosed when filing for bankruptcy. Additionally, a bankruptcy trustee will need to be given access to one’s digital wallet as part of the process. The valuation of cryptocurrency will be determined at the time of the bankruptcy filing. If cryptocurrency increases in value from the time of the filing, or is expected to do so, it may be a good idea for the debtor to consider including this as part of their exemption amount. 

Overall, there are no Maryland state laws or Federal laws pertaining to cryptocurrency in bankruptcy. These are considered in the same way as other assets, such as cash holdings or stocks. Individuals who are considering their options with regards to bankruptcy should speak with a lawyer about the specific options they may have and the steps involved in this process.  

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