Bitcoin and Bankruptcy

There is probably already a post out there regarding bitcoin and bankruptcy because it seems all the rage these days. However, I have not seen one, so I will claim the first. Perhaps though, it is because there is really only one thing to say about bitcoin and bankruptcy. As opposed to the complexity of every other aspect of bitcoin, this is really quite simple: bitcoin is an asset in a bankruptcy so it must be disclosed.

I hope that is sufficient explanation. Now that I think of it, though, there could be one rather challenging aspect of bitcoin and bankrupty: what is its value? There have been cases where a chapter 7 has been held open so long that the trustee went after the increase in value of exempted real property as part of the estate – with how volatile bitcoin is, one would need to calculate its value right when the petition is filed (be sure to preserve documentation of that value at that moment). Then, one would just hope the trustee does not seek after the gains towards the end of the bankruptcy.

However, I cannot imagine anyone who owns bitcoin is going to be filing bankruptcy anytime soon, so we have time to figure this one out.

The Christmas Excess Trap

Everything in our culture drives towards giving bigger and better gifts for Christmas. Even when our budget is tight, we do not want to let our families down. So, we are tempted to buy gifts on credit. The risk is that this will put us over the top of our threshold for handling debt leading to a new year’s bankruptcy.

This raises the specter of challenges to discharge of debt for luxury items and having assets that cannot be exempted. That is because the laptop you bought for your child who lives with you is still an asset of yours to report and exempt. Gift items worth several hundred dollars are likely luxuries.

Take a deep breath and remember, the best gift is actually you being present.

Post-Holiday Pitfalls for Bankruptcy part 3

Following Christmas comes the tax filing season. The reason this carries special significance in the post-holiday season because for many people, it creates an asset that needs to be taken into account on your schedules (lists of certain kinds of items like assets). The asset to be considered is the tax refund from state and federal governments that may be expected in January through May. A Chapter 7 filed in December will likely still be open in May and one filed in January or later certainly will remain open that long. Therefore, the refunds need to be listed and, if possible, exempted.

If your state allows the use of Federal exemptions, as Kentucky does, then the exemption used to cover the tax refunds would be the “wild card” exemption covered in 11 USC Sect. 522(d)(5). The amounts listed in that provision are adjusted for inflation and so the wild card exemption can be over $11,975.  For most people, there is sufficient 522(d)(5) exemption to cover a few thousand dollars in tax refund dollars.

The key is for your bankruptcy attorney to know the upper limit of what you might realize for tax refunds and exempt as much of that as possible. They must list it as an asset on the schedule of personal property even if it is uncertain as to the amount and then exempt it. This will allow you, the debtor, to keep those funds so long as the trustee does not object to the exemptions claimed.

The treatment of tax refunds needs to be the same in Chapter 13 cases, but if they are particularly large, the trustee in the Chapter 13 may expect the Debtor to change their withholding and pay more into the bankruptcy plan.

If you forgot to tell your attorney (or they forgot to ask) about a tax refund your expect and you have already filed the petition and schedules, it is not too late. Federal Rules of Bankruptcy Procedure Rule 1009 provides for liberal amending of the petition and schedules, so be sure to tell your attorney as soon as you realize the omission.