KYC-verified account activity on Coinbase (crypto/bitcoin-related)

[kindabroke]

Hi folks,

Can any of you help me understand how the trustee (and/or whoever else is involved in the process) know where my assets are?

A while ago, I invested money in bitcoin on Coinbase.

A few months ago, I remembered I had these bitcoin. So,
(1) I transferred some of the bitcoin to a friend’s bitcoin address
(2) I converted some of the bitcoin to USD and wired it a family’s account

I don’t want to get into the details, but I honestly did it in good faith. I did it because I knew I couldn’t be trusted with money. So rather than gamble it all away, I decided it would be better to give it to people I owed.

I only found out about bankruptcy recently (which states no preferential payment).

Coinbase has KYC, so my identity is attached. But does it all get reported to the trustee/debtors/whoever?

I know KYC is reported to certain agencies eg IRS, but not sure about bankruptcy context.

Am I screwed?
I’d really appreciate any and all help/guidance.

[justbroke]

Have you filed already?

If you have, then you should amend your petition and your Statement of Financial Affairs (SOFA). The SOFA should indicate that you transferred property to an insider (family).

If you have not filed, then make sure you complete your SOFA correctly. Be aware that the Chapter 7 Trustee may try to claw back this asset.

The bitcoins, and the deposited money, are either property that your "transferred" (gave) to someone else, or it is property that someone else is holding for you. It must be disclosed. It is no different than stashing cash in your mattress or having a friend hold some cash for you. It is still an asset and is part of your bankruptcy estate.

Whether or not the Chapter 7 (panel) Trustee will want to claw it back will come down to whether or not it's "worth it" for the Trustee. Also, you may have enough "exemptions" to cover the cash or cash equivalents, but that depends on your State, your exemption scheme, and what other property you are attempting to protect from liquidation.

I'm not trying to scare you, but you need to be completely honest on your petition. If you hide this, and the Trustee finds out, you can be referred to the United States Trustee (UST) who can then refer the case to the U.S. Attorney's office for prosecution.

SOFA Question 18: Within 2 years before you filed for bankruptcy, did you sell, trade, or otherwise transfer any property to anyone, other than property transferred in the ordinary course of your business or financial affairs?

(if related to a "financial" account it may be question 20)

[despritfreya]

Absolutely agree with JB. I have a client who heavily "invested" in the stuff. All was disclosed to the Trustee and the Trustee will be taking control over the "investment". Interestingly, and like me, the Trustee has no clue how bitcoin works so my client is going to take the lead in getting the "investment" cashed out for the benefit of the bk estate.

General rule. . . disclose, disclose, disclose - this includes transfers of money as well as the asset itself.

Des.

[kindabroke]

Apologies for the delay. Been pretty crazy... have a feeling a lot more bankruptcies incoming. Really appreciate both the responses!

Regarding clawbacks, can’t my friend simply say “no I won’t give the money back”?

If that’s the case, is that a starting debt I’d incur post-bankruptcy?

[justbroke]

Regarding clawbacks, can’t my friend simply say “no I won’t give the money back”?

Yep, and the Trustee will use the full power of the court and obtain a judgement and then collect in any manner allowed by law (levy, garnishment, seizure).

If that’s the case, is that a starting debt I’d incur post-bankruptcy?

When a Trustee class money back from an insider or other person to which the debtor transferred property, it is not about the debtor. The Trustee sues the property holder (transferee) for the property. The debtor has nothing to do with that.

[bcohen]

How much money are we talking about? Under $1,000? Under $2,000? A lot more? Can your friend repay this money without causing significant hardship to himself/his family? If we are talking about a small amount of money ($1,000 or less), I would suggest to disclose the Bitcoin sale and cash transfer. Most likely it will not be a problem. If we are talking about a huge amount of money, the best advice I can give is do not file for bankruptcy, and then you don't have to worry about what a trustee might do.