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The value of your cryptocurrency can swing by thousands of dollars in a single week, and that volatility can make or break a bankruptcy filing. In Texas, crypto is treated as property you own, so you must disclose it and follow the rules for protecting it. Handled well, many filers move through a Chapter 7 bankruptcy or a court-approved repayment plan and keep their fresh start intact. Handled poorly, hiding or mistiming a crypto disclosure can cost you your discharge. Here is what Dallas-Fort Worth filers need to know before they file, explained by our experienced Dallas-Fort Worth bankruptcy attorneys.
Cryptocurrency Is Property You Have to Disclose
When you file for bankruptcy, the law creates a bankruptcy estate made up of nearly everything you own as of the day you file. Federal law defines property of the bankruptcy estate broadly enough to include intangible assets like Bitcoin, Ethereum, stablecoins, and even non-fungible tokens (NFTs). That means your cryptocurrency is part of your case whether it sits in a hardware wallet, a mobile app, or an account on an exchange. You are required to list it on your schedule of assets, just as you would a bank account or a vehicle, and the value you report is generally the fair market value of the coins on your filing date.
Do not be tempted to leave crypto off your paperwork. Concealing an asset or making a false statement on your schedules can lead the court to deny your discharge, which would leave you still owing the very debts you filed to erase. It is also a federal crime that can be punished by a fine and up to five years in prison. Bankruptcy trustees increasingly know how to trace digital wallets and can request records directly from major exchanges, so full and honest disclosure is always the safer path.
What Counts as a Digital Asset in Your Case
The bankruptcy estate is not limited to the best-known coins. Bitcoin and Ethereum are the obvious examples, but stablecoins, altcoins, other tokens, and NFTs are all forms of property that belong in your disclosures. Crypto held on an exchange counts, and so does crypto stored in a private hardware or software wallet that only you control. Rewards from staking, interest earned on lending platforms, and coins you are still waiting to withdraw are part of the picture too. A simple rule helps: If it has value and you have a right to it, assume it belongs on your schedules and bring the details to your attorney.
Gathering good records early makes the rest of your case smoother. Before you meet with a lawyer, it helps to pull together a few things:
- A list of every wallet and exchange account you use, along with the coins or tokens held in each.
- Recent statements or screenshots showing balances and approximate values.
- A record of any large purchases, sales, or transfers of crypto in the past year or two.
With that information in hand, your attorney can value your holdings accurately and plan around them instead of being surprised later. Accurate records also protect you, because they show the trustee that you are disclosing everything in good faith.
What Happens to Cryptocurrency in a Chapter 7 Case
Chapter 7 is a liquidation. A trustee reviews your assets and can sell anything that is not protected by an exemption in order to pay your creditors. In many everyday consumer cases, there is little or nothing for the trustee to take. You can read a plain overview of the Chapter 7 liquidation process on the federal courts’ website. Whether your cryptocurrency is safe comes down to the exemptions you can claim.
In Texas, filers can generally choose between the Texas exemptions and the federal bankruptcy exemptions, and the better choice depends on what you own. A few points matter for cryptocurrency:
- Texas’s exemptions are organized around specific categories of property and a generous homestead protection, and none of those categories was created for digital currency.
- The federal exemptions do not include a category made for crypto either, but they offer a wildcard that can protect a limited dollar amount of any property you choose, including cryptocurrency.
- Because that wildcard only stretches so far, a large crypto position is often partly or fully unprotected in Chapter 7, which means the trustee could sell it to repay your creditors.
This is exactly the kind of trade-off where the exemption system you choose changes the outcome, so it is worth mapping out your coins and their value with an attorney before you file. A skilled bankruptcy lawyer can tell you whether your holdings are likely to be protected or whether another chapter fits your goals better.
How Chapter 13 Handles Your Cryptocurrency
In a Chapter 13 bankruptcy, you keep your property, including your crypto, and repay some or all of your debts through a three- to five-year plan. There is a catch built into the law. Your bankruptcy plan must pay your unsecured creditors at least as much as they would have received if your assets had been liquidated in Chapter 7. So if you hold cryptocurrency that no exemption covers, its value effectively sets a floor for what you must pay into your plan.
For some filers, that is a welcome trade. Rather than surrender valuable coins to a Chapter 7 trustee, a Chapter 13 debtor can keep the cryptocurrency and pay its value to creditors over several years. If you believe in your holdings and want to keep them, that structure can be a better fit than liquidation, and an attorney can run the numbers both ways before you decide.
Why Crypto’s Value Swings Make Timing Matter
Cryptocurrency is unusually volatile, and bankruptcy law generally fixes the value of your assets as of the day you file. A wallet worth a modest amount one month can be worth far more the next, and that snapshot can change whether your coins are fully exempt or partly exposed. Moving or selling crypto right before filing can also create problems, because trustees closely examine transfers made shortly before a case and can sometimes undo them.
The safest approach is to document what you hold, avoid last-minute transfers, and time your filing with professional guidance rather than reacting to the market. Small choices about when and how you file can have a real effect on how much of your cryptocurrency you keep.
Talk With a Dallas-Fort Worth Bankruptcy Attorney
Cryptocurrency does not have to derail your fresh start, but it does call for careful, honest planning. At Toronjo & Prosser Law, we help Dallas-Fort Worth individuals and families weigh Chapter 7 against Chapter 13, choose the exemptions that protect the most, and disclose digital assets the right way. Contact our team to talk through your situation during a free consultation. We will help you understand your options and move toward debt relief with confidence.