Overview: Why digital assets matter when you file
Digital assets — including cryptocurrency, tokens, NFTs, and private keys — are property for bankruptcy purposes and must be accounted for when you file. Federal law requires debtors to file schedules of assets and a statement of financial affairs; failing to list assets (including crypto) can jeopardize your discharge and expose you to allegations of concealment.
This guide gives concrete, practical steps: how to secure assets against theft, how to document and value holdings for schedules, what transfer actions may create legal risk (including avoidable preference or fraudulent transfer claims), and when to get counsel. The guidance below is practical (and not a substitute for attorney advice tailored to your facts).
Securing digital assets before filing
Immediate priorities: preserve access, prevent unauthorized transfers, and create reliable records.
- Preserve control of private keys and passwords. Avoid deleting key material or changing wallet setups right before filing. If you use a hardware wallet (recommended for long-term security), keep it powered-off and stored securely. Cold-storage (hardware wallets, paper backups kept offline) significantly reduces the risk of remote theft.
- Create immutable documentation. Take dated screenshots of account balances, export wallet addresses, transaction histories, exchange account statements, and record seed phrases in a secure, offline manner. Store copies in at least two secure physical locations (e.g., a home safe and a lawyer’s or trustee-accessible escrow box) and maintain a clear chain of custody.
- Do not attempt to hide or dissipate assets. Moving crypto to evade creditors is legally dangerous. Transfers made shortly before filing can be challenged as preferential or fraudulent and may be reversed by the trustee. Trustees and courts are actively using on-chain analytics and exchange records to trace transfers.
- If third-party custodians hold funds (exchanges, custodial wallets), notify them immediately if advised by counsel or the U.S. Trustee. Trustees can often work with major U.S.-based exchanges to freeze accounts when appropriate; early cooperation may preserve value.
Disclosing and valuing digital assets on your schedules
What to disclose: list the type (Bitcoin, Ether, specific tokens), quantities, wallet addresses (where relevant), whether held on an exchange or in private custody, and the best available valuation as of the petition date. The Bankruptcy Code requires schedules and a statement of financial affairs; that duty applies to crypto holdings just like other assets.
Valuation issues: courts and practitioners use different approaches (petition-date valuation versus distribution-date valuation), and market volatility can materially change recoveries and claim amounts. Be transparent about the valuation method used and preserve sources (exchange screenshots, price-provider data) supporting petition-date values. Recent commentary and cases show courts wrestling with valuation and classification (property, commodity, or security), which can affect claims and distributions.
Practical steps for schedules:
- Use Official Forms and follow local guidance for currency formatting; where helpful, attach an appendix listing wallet addresses and exchange account IDs (without publishing sensitive keys).
- Provide contemporaneous screenshots or export files showing balances and transaction histories dated on or around the petition date.
- If you previously transferred crypto, explain the transfers in the Statement of Financial Affairs and keep documentation showing recipients and the purpose of the transfer (repayment, purchase, gift). Omissions or vague answers invite trustee scrutiny.
Safe transfer considerations, common pitfalls, and a practical checklist
When transfers might be lawful: there are narrow, lawful reasons to move assets before filing (e.g., moving from a compromised wallet to secure custody). But every transfer must be documented and done for legitimate purposes — not to defeat creditors. Transfers within statutory lookback periods (90 days for preferences, longer for fraudulent transfer claims) are high‑risk.
Practical checklist (start here):
| Step | Action |
|---|---|
| 1 | Freeze account activity where possible (with exchange cooperation) and do not authorize any non‑essential transfers. |
| 2 | Create dated exports/screenshots of balances and transaction histories for all addresses and custodians. |
| 3 | Secure private keys/seed phrases in offline, fireproof/waterproof storage; record who has access and consider escrow with counsel. |
| 4 | List each asset on Schedule A/B and explain prior transfers in the Statement of Financial Affairs; attach supporting documentation where possible. |
| 5 | Do not transfer assets to friends, relatives, or third parties to hide them — such transfers are often reversed and can lead to denial of discharge. Courts have denied discharges where crypto was concealed. |
| 6 | Consult a bankruptcy attorney with digital-asset experience to align security steps with legal obligations and to coordinate any necessary notices to trustees or custodians. |
Conclusion: digital assets raise unique technical and legal issues, but the baseline is simple — preserve access, document thoroughly, disclose completely, and avoid transfers intended to hinder creditors. Early counsel and cooperation with the trustee or U.S. Trustee’s office typically produce the best outcome for debtors seeking an orderly, honest process.