Chapter 7 Bankruptcy and Cryptocurrency: What Long Island Filers Need to Disclose in 2024

Navigating the Complex World of Cryptocurrency Disclosure in Chapter 7 Bankruptcy: A 2024 Guide for Long Island Filers

As digital assets continue to reshape the financial landscape, Long Island residents filing for Chapter 7 bankruptcy face increasingly complex disclosure requirements when it comes to cryptocurrency holdings. Bankruptcy filers must report all cryptocurrency holdings with as much detail as possible, including purchase dates and value at filing, and when you file for bankruptcy, you must disclose all your assets; cryptocurrency is no exception. Understanding these requirements is crucial for anyone considering bankruptcy protection in 2024.

The Legal Reality: Cryptocurrency is Property in Bankruptcy

Cryptocurrencies fall under the category of property in bankruptcy law, and the U.S. Bankruptcy Code requires debtors to list all property they own, regardless of form or location. This comprehensive requirement means that Bitcoin, Ethereum, NFTs, or any other digital assets stored in wallets, exchanges, or elsewhere must be disclosed during your bankruptcy filing.

For Long Island residents, this disclosure requirement is particularly important given New York’s stringent cryptocurrency regulations. In June of 2015, DFS issued virtual currency regulation 23 NYCRR Part 200 under the New York Financial Services Law, and since then, DFS has granted numerous virtual currency licenses and charters to ensure that New Yorkers have a well-regulated way to access the virtual currency marketplace.

What Must Be Disclosed in 2024

When filing for Chapter 7 bankruptcy, your disclosure obligations are extensive. All property of a debtor, no matter the value, must be disclosed in a bankruptcy case. This includes:

The Consequences of Non-Disclosure

The penalties for failing to disclose cryptocurrency assets are severe. Failing to disclose digital currency can lead to severe penalties, including the dismissal of the bankruptcy case or criminal charges for bankruptcy fraud. Even if the failure to disclose appears innocent, intentional failure to disclose could lead to criminal prosecution.

Failing to disclose these assets can lead to severe consequences, including the dismissal of your case or even criminal charges for fraud. This makes working with an experienced chapter 7 attorney essential for navigating these complex requirements properly.

How Cryptocurrency is Treated in Chapter 7

Once disclosed, your cryptocurrency becomes part of the bankruptcy estate. In Chapter 7 bankruptcy, trustees liquidate non-exempt assets to pay off creditors, and because the court considers cryptocurrency a non-exempt asset, it’s typically subject to liquidation unless protected under state or federal exemptions.

The liquidation process presents unique challenges due to cryptocurrency’s volatile nature. A trustee may choose to liquidate cryptocurrency quickly to avoid potential losses in value, and because cryptocurrency prices fluctuate, trustees often sell these assets quickly to secure value for creditors.

Valuation Challenges in 2024

One of the most complex aspects of cryptocurrency disclosure involves accurate valuation. Cryptocurrency is notorious for its price volatility, with values that can swing dramatically within a few hours, making it difficult to assign a fair value to digital currencies at any given point during bankruptcy proceedings.

You will need to list the value of your cryptocurrency as of the date you file your bankruptcy petition, and the value should be based on the U.S. dollar equivalent when filing using a reliable exchange rate source, such as Coinbase or CoinMarketCap.

Long Island-Specific Considerations

Long Island bankruptcy filers benefit from New York’s unique exemption structure. New York had previously opted out of the Federal exemptions, but on Christmas Eve in 2010, New York opted in, giving debtors the option to choose between state exemptions and the Federal bankruptcy exemptions. This choice can be particularly valuable when protecting cryptocurrency assets.

While there is no specific exemption for cryptocurrency, Long Island filers may be able to use wildcard exemptions to protect some digital assets. The wildcard exemption has enabled New York debtors to protect many assets that are non-exempt under the New York state exemptions, and being able to use the Federal wildcard exemption provides an enormous benefit for New York debtors.

The Role of Trustees in Cryptocurrency Cases

Modern bankruptcy trustees are increasingly sophisticated in handling cryptocurrency cases. Coinbase has a webpage directed at bankruptcy trustees, and Coinbase will assist trustees with locating the crypto assets of specific debtors, provide trustees with digital wallets to transfer and hold cryptocurrency, and freeze accounts, among other services.

This technological advancement means that the more practical issue related to disclosure is whether or not cryptocurrency could be discoverable by a trustee if a debtor fails to inform his or her attorney and fails to disclose the cryptocurrency as an asset.

Best Practices for Long Island Filers

To ensure compliance with 2024 disclosure requirements, Long Island residents should:

Moving Forward with Professional Guidance

The intersection of cryptocurrency and bankruptcy law continues to evolve rapidly. For Long Island residents considering Chapter 7 bankruptcy, understanding these disclosure requirements is just the beginning. The complexity of these cases, combined with the severe penalties for non-compliance, makes professional legal guidance essential.

As the legal landscape continues to develop, staying informed about disclosure requirements and working with experienced bankruptcy professionals remains the best strategy for successfully navigating Chapter 7 proceedings while holding cryptocurrency assets. The key is complete transparency and proper documentation from the outset of your case.

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