Bankruptcy Law

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Statutes: 11 U.S.C. ch. 7, 9, 11, 12, and 13.
Rules: Federal Rules of Bankruptcy Procedure
(State laws also apply to certain aspects of bankruptcy.)

Bankruptcy trustees are now administering cryptocurrency assets in bankruptcy estates. Section 550(a) of the U.S. Bankruptcy Code permits a bankruptcy court, under certain circumstances, to avoid a transfer of an asset that was made prior to the filing of a bankruptcy petition. If a transfer is avoided by the court, the bankruptcy trustee can "recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property. . ." 11 U.S.C. § 550(a).

In May 2014, HashFast Technologies LLC (a bitcoin mining hardware manufacturer) became subject to a bankruptcy petition in the U.S. Bankruptcy Court for the Northern District of California. The Bankruptcy Trustee subsequently sought to avoid a pre-bankruptcy transfer (made in 2013) of 3,000 bitcoin to an individual. The 3,000 bitcoin had a $360,000 value at the time of the transfer in 2013, but had appreciated to a $1.2 million value by 2016. The Bankruptcy Trustee wanted the court to rule that the bitcoin was a commodity that should be valued at its current value of $1.2 million. The recipient of the 3,000 bitcoin wanted the court to rule that bitcoin was currency that should be valued at the original $360,000.

On February 22, 2016, the U.S. Bankruptcy Court for the Northern District of California issued an order that stated bitcoin was not to be considered U.S. currency in determining its value under 11 U.S.C. § 550(a). The court held as follows: "The court does not need to decide whether bitcoin are currency or commodities for purposes of the fraudulent transfer provisions of the bankruptcy code. Rather, it is sufficient to determine that, despite defendant’s arguments to the contrary, bitcoin are not United States dollars. If and when the Liquidating Trustee prevails and avoids the subject transfer of bitcoin to defendant, the court will decide whether, under 11 U.S.C. § 550(a), he may recover the bitcoin (property) transferred or their value, and if the latter, valued as of what date."

Date Bankruptcy Court Filings on Bitcoin
01/22/2016 HashFast Technologies LLC - Motion for Partial Summary Judgment of Bankruptcy Trustee (Bitcoin is a Commodity) PDF
02/05/2016 HashFast Technologies LLC - Opposition to Motion for Partial Summary Judgement (Bitcoin is Currency) PDF
02/22/2016 HashFast Technologies LLC - U.S. Bankruptcy Court N.D. Ca. Order on Motion for Partial Summary Judgment (Bitcoin is Not U.S. Currency) PDF

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