Chapter 7 and sale/trading of crypto

[bufordtannen]

Hi everyone, myself and my spouse have decided to file for Chapter 7 Bankruptcy (California). We have not talked to an attorney yet, but are going to wait for a few months. We stopped making payments on cc last week for the first time, it was hard, but we just cannot afford it anymore.

I do have a question. I have been unemployed for quite awhile. I had all of my money in a crypto exchange and would cash out when I needed to pay bills in increments of 1000 to 3000 over the years. I was a crypto day trader, but I lost a lot of money over the years doing that. I initially funded my crypto day trading/investments about 4 years ago from a big settlement I received. That money in the exchange is all about gone as I have transferred it to my bank.I have about $1k left that I plan to transfer help cover expenses as I don't plan on using my credit card anymore.

The issue I'm thinking I may run into is my crypto trading history. Will the trustee ask for this, or will they just ask for a 1 page printout just showing my balance on the crypto exchange? When I filed my taxes last year (2022), I had over $1 million dollar in trades (constantly trading about $15k), but my loss was about $4k on the year. Will they want to see all of these trades? There are literally thousands. At first glance, seeing a million dollars in trading volume is crazy, but it's true I literally used about $15k to reach that. I'm hoping they just ask to see my statement showing my current balance.

Also, what does the trustee do if someone has crypto that is locked up and can't be touched for a year? The crypto isn't on an exchange, but in a defi wallet. If you don't know how DeFi crypto works, it can be very complicated, it's not as simple as buying and just selling like stocks, you can stake your crypto for 1 or 5 years. If I don't have access to that crypto, what do I do? Do I list it. I don't want to omit anything as I don't want any issues. Does anybody have any experience? I tried explaining how DeFi in crypto works and they were just looking confused. The blockchain and web3 wallets are not sometime I think the trustee may be versed in.

Also would it be advisable to sell the crypto I have now that I have access to? I just want to sell it and have more living expenses as I don't have an income right now (only my spouse). I don't plan on hiding the money.

Thanks

[justbroke]

Welcome to BKForum.

The issue I'm thinking I may run into is my crypto trading history. Will the trustee ask for this, or will they just ask for a 1 page printout just showing my balance on the crypto exchange?

Generally speaking, the Chapter 7 Trustee will seek anywhere from 3 to 6 months of financial account information for every account that you have. They are actually trying to determine whether you are hiding money or move money before filing. I'm 99% sure that they will ask for these account statements. I can't tell if they will want to see an entire year worth of Statements, but that's on a case-by-case basis. With large amounts involved, they may want to look back further than normal.

Also, what does the trustee do if someone has crypto that is locked up and can't be touched for a year?

The Trustee has pretty broad powers. Should the Trustee run into any trouble they'll simply get the Federal Bankruptcy Court to issue an order compelling the holder of estate property to turn over that property to the Trustee. Otherwise the holder would face sanctions from the court and held in contempt.

If I don't have access to that crypto, what do I do? Do I list it. I don't want to omit anything as I don't want any issues. Does anybody have any experience? I tried explaining how DeFi in crypto works and they were just looking confused. The blockchain and web3 wallets are not sometime I think the trustee may be versed in.

You must list all property no matter where it is located. You may be surprised at how many bankruptcy Trustees know about crypto currencies. Their entire job is to liquidate assets and they will ask, at the 341 Meeting, if you hold any funds, liquid or illiquid, in any currency exchange. They also now ask about non-traditional banks such as Venmo, CashApp, Paypal, and others.

If you have living expenses no one is ever going to blame you for selling an asset to provide for your health, safety, and housing. So long as it was for fair market value the Trustee won't care. But if you sell your crypto wallet to your cousin for $1 to avoid it going to the bankruptcy estate, that's another thing. I know you're not trying to do that but it is just to illustrate the difference.

[bufordtannen]

Thank you SO much for your reply, I really appreciate it. This forum has been so helpful and is full of great information to help someone who is a noob. Would you mind answering a few other questions if you get a chance? I know you've been so kind already. I have so many questions nave been scouring the web. Do you think now would be a good time to consult an attorney? We plan to file in 3-4 months, I was thinking to wait until then.

1.) Would selling items (such as sports memorabilia and crypto) count as income for the means test (6 months prior to filing)? If I've lost money and have cost basis records, would it still count as income?

2.) On the "snapshot" when one files, is that the date they use for to enforce exempt assets? For example, I think CA allows just over $1800 in a bank. If I have $1800 in my bank on the day I file, from what I understand it will be exempt. What if I get my direct deposit check for $1000 5 days after and I now have $2800, that paycheck wouldn't matter right since it was deposited after the snapshot? And any money earned on the day after the snapshot will be exempt?

3.) Since me and my spouse are filing bankruptcy jointly, I've heard it's good to get another bank account that you are not currently doing business with prior. If I owe say BOA credit cards, but my spouse does not, would it be safe for her to open a BOA account? I only ask because we are filing jointly. She doesn't have any BOA debt nor never done business with them.

4.) For the means test, would one benefit from contributing more to their 401k to help bring income down to help qualify? I know they use gross income for the previous 6 months. We are about $1k under the monthly amount for a family, but I sold about $3k of sports mem to get money to live. We both have about $60k student loan debt, which is more than what we each owe in cc debt (we each owe about $30k in cc). Would that non consumer student loan debt exempt us?

5.) I see that in CA, it says that

• 75% of wages paid within 30 days before filing bankruptcy - 704.070.

Do you know what that means? Does that mean if we get a paycheck before the snapshot via direct deposit, that 75% would be exempt?

[shipo]

I cannot answer all of your questions, but I do have few possible answers for you:

• I strongly recommend contacting not just one attorney now, but more like three to five attorneys now; interview them all and pick the one you are the most comfortable with. In my case I interviewed attorneys more than two years before I filed and engaged one 15 months before we actually pulled the trigger (my attorney wanted to pick the sweet spot in my income stream to maximize what I could keep).
• As I understand it, selling assets before filing can be a no-no as the Trustee would otherwise consider them property of the estate. I also think the work around would be if you needed that money for living expenses. This is a question for your attorney.
• Regarding a new bank account, I would strongly recommend you open a new account with a financial institution neither of you have ever done business with before. That and I would steer clear of BofA, my wife and I both banked when we filed our separate bankruptcies, her a Chapter 7 and me a Chapter 13, and they were not kind to us; I am so glad I don't bank with them any longer.
• Regarding your 401(k) contributions, one of the reasons why my attorney had me hold off as long as she did before filing was to show a history of contributions; if I recall correctly, she told me the Trustee would see it as a red flag if I upped my contributions just prior to filing for bankruptcy.

[justbroke]

As shipo has written, its time to obtain a few consultations with area bankruptcy attorneys. Always be careful when selling property before filing. That could become a transfer which the Trustee will go after.

As for exemptions, they will be based on which exemption system you choose in California; California has two exemption systems. I can't tell you which exemption scheme to use or which specific exemptions to use. One system/scheme may provide more protections for real property over personal property. No one can just say that having $1,800 in the bank on the day of filing is protected. As everything in the law, it depends.

(I know we all hate "it depends" but in this case it depends on whether you exhausted all of your exemptions which would have covered the money in the bank. It also depends in which jurisdiction you file. In Florida, that money is likely not fully protected. It depends.)

[bufordtannen]

Thank you both so much for the info. Did any of the creditors ever file a lawsuit in that 15 month waiting period? Do you know typically how long it takes for a cc company to file a lawsuit? If they do, would that be discharged once one does eventually file?

I definitely know every situation can be different. I know CA has a system 1 list where $600k of homestead can be exempt. Our main goal is to keep the house. The house is solely in my wife's name so maybe that will be a good thing, but we both are going to file. But will definitely plan on get a few consults. Thanks again, I really do appreciate you taking the time to share your knowledge.

[justbroke]

If you are using System 1 to protect a home, you'll find that the exemptions for other personal property are not as nice as California's System 2. That's all I'll say about that.

I have never had a creditor (except a mortgage creditor) file a lawsuit against me. I have never been 31 or more days late on a credit card, motor vehicle, or personal loan. Creditors are fickle. American Express will sue you in about 10 minutes after you're late (that's an exaggeration, but they are quick). Other creditors may wait and wait and eventually decide whether it's worth filing. Because there are so many variables that a creditor may use to make that determination, the answer is: it depends.

[shipo]

Thank you both so much for the info. Did any of the creditors ever file a lawsuit in that 15 month waiting period? Do you know typically how long it takes for a cc company to file a lawsuit? If they do, would that be discharged once one does eventually file?

I definitely know every situation can be different. I know CA has a system 1 list where $600k of homestead can be exempt. Our main goal is to keep the house. The house is solely in my wife's name so maybe that will be a good thing, but we both are going to file. But will definitely plan on get a few consults. Thanks again, I really do appreciate you taking the time to share your knowledge.

The only financial institution to file against me was the holder of the second mortgage on our house. We were deeply under water in 2013, even though we'd owned the house for 11 years and had sunk more than a quarter of a million into upgrades over that time. My wife was unemployed and I was grossly under employed at the time and we tried to qualify for a short sale but the holder of the second categorically refused, saying they knew we were faking our financial distress and that we had LOTS of money stashed away. At one point I told them, "Show me where the money is and it is yours."

In the end they really screwed themselves twice, literally. The first time they caused us to lose a sale which would have resulted in them only losing about $10,000 on the deal. Six month later (without a single payment to them over that time) they finally relented if we'd agree to a personal loan for the difference between the proceeds from our second buyer and what we owed; I went with it and signed the personal loan document for about $48,000, made one payment, and then stopped paying again. That was during the late summer of 2013 and I didn't file until January of 2015; a few weeks before my lawyer was going to file the paperwork I found a Sheriff waiting for me in the driveway; I took the summons, drove directly to my lawyer's office and handed it to her. My case was filed before the court date, so in the end, instead of being out only $10,000 if they'd agreed to the short sale, they ended up getting stiffed for nearly five times that. They were the only lender I didn't feel sorry for.