Digital Assets and Bankruptcy: Things to Consider

Filing for consumer bankruptcy can be an extremely complicated process, especially when you are trying to determine which of your assets are likely to be exempt under Illinois law. As you may already know, Illinois bankruptcy exemptions allow debtors to keep property (i.e., exempt property will not be liquidated) in a Chapter 7 bankruptcy case, and exemptions determine which assets must be included in a debtor’s repayment plan in a Chapter 13 bankruptcy case. Most bankruptcy exemptions were written into the law quite some time ago, so they do not specifically account for new kinds of digital assets like cryptocurrency or non-fungible tokens (NFTs). If you own cryptocurrency, NFTs, or other types of digital assets, what do you need to consider if you are thinking about filing for bankruptcy?

Understand What Types of Assets are Digital

Before we discuss some of the questions you might have about bankruptcy exemptions and digital assets, it is important to understand what kinds of assets we are talking about when we refer to digital assets. Even though your retirement accounts or your savings accounts might not be tangible, and you might access information about their balances digitally, these types of assets are already included in Illinois laws concerning bankruptcy exemptions. The types of digital assets we are referring to include, for example, cryptocurrency and NFTs.

What is cryptocurrency, and what are NFTs? According to an article in Forbes, cryptocurrency is “a digital, encrypted, and decentralized medium of exchange,” and “unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of cryptocurrency.” Cryptocurrency can be used like U.S. dollars you have in your bank account to buy goods or pay for services, but they are different types of assets. Cryptocurrency is an asset that is based on blockchain technology, and you likely know it by the two popular types of crypto, Bitcoin and Ethereum.

What are NFTs in relation to cryptocurrency? NFTs are not a form of currency, but they are also digital assets. According to Forbes, an NFT is “a digital asset that represents real-world objects like art, music, in-game items, and videos,” and “they are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.”

Are Digital Assets Exempt in Bankruptcy Cases, and Do They Need to be Disclosed?

In large part, bankruptcy exemptions and U.S. bankruptcy law has not fully caught up to the presence and use of digital assets.

In general, any assets must be disclosed in a U.S. bankruptcy case, including digital assets. If you fail to disclose digital assets, even if you think the trustee will not locate them, you could be opening yourself up to fraud allegations.

What about bankruptcy exemptions? There are no specific bankruptcy exemptions in Illinois for digital assets, although you may be able to exempt digital assets with the “wildcard” exemption, which allows debtors to exempt up to $4,000 in any type of personal property of their choosing.

Contact a Bankruptcy Lawyer in Oak Park

If you have questions about asset disclosure and exemptions in your bankruptcy case, you should seek advice from an Oak Park bankruptcy attorney who can assist you. Contact the Emerson Law Firm today for more information.


See Related Blog Posts:

What Questions Should I Ask a Bankruptcy Lawyer?

What are My Options if I am Unable to Make My Chapter 13 Payments?

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