How to Handle Bitcoins in Bankruptcy

Sacramento Bankruptcy Lawyer Rick MorinHave you heard of Bitcoins? A Bitcoin is an online currency that is not backed by any government. Bitcoins have been receiving a lot of media attention recently, including extensive coverage in the New York Times. As a Bankruptcy Attorney in Sacramento, I have been following this trend closely. I have also been considering how to treat a debtor in possession of Bitcoins.

A strong case can be made that Bitcoins should be treated just like any asset.

Just like cash in hand, money in the bank, or bearer bonds, Bitcoins represent value to the Debtor and need to be fully disclosed. Once a Chapter 7 Bankruptcy case is filed, the debtor’s Bitcoins would become the property of the Bankruptcy Estate for the duration of the case.

The volatility of Bitcoins poses a problem: how do you value them? Not all assets have steady valuations. Houses and cars change in value over time. Stocks are the asset class most like Bitcoins because the value of a stock could change dramatically day-to-day.

Bitcoins should be listed as personal property on Schedule B of the Bankruptcy Petition. I would list the number of Bitcoins the debtor possesses along with a valuation, the date of the valuation, and the exchange upon which the debtor bases his or her valuation.

For instance, on Schedule B I would list “2.5 bitcoins. Value from mtgox.com on 12/03/2013. Value: $2,750.”

In order to protect the debtor’s interest in his or her Bitcoins, the proper exemption would need to be applied. In California, I would utilize the wildcard exemption to fully protect the debtor’s interest. Without the proper exemption, the debtor’s Bitcoins would be subject to liquidation by the Bankruptcy Trustee.

Given the potential of appreciation for a debtor’s Bitcoins, it is important that they be handled correctly in a Chapter 7 Bankruptcy case.

If you have any questions about Chapter 7 Bankruptcy, please contact Sacramento Bankruptcy Attorney Rick Morin at (916) 333-2222.