Crypto Assets Under the Bankruptcy Code: Practical Guidance for Addressing Novel Problems

Numerous cryptocurrency exchanges or platforms have filed for Chapter 11 protection in recent years, and applying the Bankruptcy Code -which was created in 1978 - to digital assets maintained on digital “exchanges” has raised numerous complicated legal issues and frustrating discovery challenges. Both judges and lawyers will need to be creative and flexible in their practical workarounds. There appears no reason to believe the industry will face significant regulation so hearing from trailblazers who have found ways to address these problems will be crucial in establishing best practices.

Peculiar issues often arise when litigating turnover or avoidance actions. In fact, Coinbase has published its own guide for bankruptcy trustees. Likewise, the U.S. Trustee has put out guidance on investigating the financial affairs of a debtor who has cryptocurrency. In a recurring scenario, the assets of one debtor are actually held by or were transferred to another debtor, leading to debtor v. debtor conflicts across jurisdictions and circuits. Lessons from a wave of cryptocurrency exchange and lender bankruptcies starting in 2022 speak to getting records and information, identifying property of the estate, application of the automatic stay, perfection of security interests, and recovery of transferred assets.

Listen as our panel discusses lessons from the bankruptcies of crypto exchanges, practical approaches to emerging problems, the key issues arising in the bankruptcies of debtors owning these assets, and what policy changes could mean for bankruptcy and reorganization professionals.