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Cryptocurrency and bankruptcy concerns
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Cryptocurrency and bankruptcy concerns

On Behalf of | Jul 21, 2022 | Bankruptcy |

Cryptocurrency investment opportunities grew in popularity for several reasons, and reports of significant investment returns played a role. No guarantees exist with cryptocurrency trading, as many Louisiana investors have likely learned. Digital assets experience increases and decreases in value, and crashes are possible. Those who put all their savings into crypto vehicles might suffer financial ruin after a crash.

Crypto and bankruptcy

When someone puts significant funds into cryptocurrency and experiences massive gains, their lifestyle may change. Considerable increases in net worth could lead to taking more business risks while spending more on personal luxuries. If the person’s crypto holdings crash, the individual may be left with few assets and far more debts.

Investors may not be the only ones who suffer cataclysmic losses. Cryptocurrency-based trading platforms might become insolvent after a crash, possibly leading the crypto brokers to seek bankruptcy protection. Companies attempting to increase their valuation by purchasing crypto assets may also suffer. Such enterprises could explore options for restructuring under the bankruptcy laws.

The publicly traded cryptocurrency company Coinbase informed customers it might hold onto their digital assets if the company enters bankruptcy proceedings. Coinbase noted investors might become unsecured creditors subject to bankruptcy proceedings. Such a move could cause financial woes for investors, and the investors might need assistance from the bankruptcy courts.

Filing for bankruptcy after losses

Filing for bankruptcy might be the only way for an investor to address massive debts and losses. Cryptocurrency traders and investors with more obligations than assets might file for Chapter 7 or Chapter 13 bankruptcy.

Chapter 13 bankruptcy involves setting a three to five-year payment plan supervised by the court. Some debts face a discharge during Chapter 13 proceedings. Chapter 7 involves liquidating non-exempt assets to pay certain debts, and some obligations undergo a discharge.

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