Cryptocurrencies are fast becoming a popular investment for Australians considering its exponential growth in value over the past decade. Over the last few years, we find more bankrupts owning cryptocurrencies in one form or another.

What are cryptocurrencies?

Cryptocurrencies were created essentially as digital currencies or an alternative from of money. It is currently accepted as legal tender in some markets around the world. Over the years however, they have evolved to become a form of investment or speculative instrument, not unlike investing in any other investment assets e.g. real property.

What happens to your cryptocurrencies once you are a bankrupt?

It is the obligation of a bankruptcy trustee to realise all divisible property of a bankrupt for the benefit of creditors. Divisible properties include:

• Real property;
• Motor vehicles above certain value;
• Cash at bank above a certain amount; and
• Cryptocurrency.

Funds in your superannuation generally are not considered divisible property.

As such, any cryptocurrency held by you as at the date of bankruptcy will vest in your bankruptcy trustee. They will be ‘collected’ and sold by your bankruptcy trustee for the benefit of your creditors.

Can you buy cryptocurrency during bankruptcy?

Any purchase of cryptocurrencies by you during your bankruptcy will likely be treated as after-acquired property by your bankruptcy trustee, even if they are purchase using post-bankruptcy income. That is, the cryptocurrencies will vest in the bankruptcy trustee and the bankruptcy trustee has the power to sell it.

There is an exception however, that is where you can show that the cryptocurrencies purchased were intended to be used as an alternative or substitute form of currency. You will need to prove that the intention when purchasing the cryptocurrencies was to use them to buy and sell goods for example.

Contact us

If you would like to obtain further general information regarding bankruptcy you may wish to view our Bankruptcy FAQs Page. You may use our Income Contribution Calculator to estimate the income contributions you are liable for.

If you wish to discuss the content of this article or your personal circumstances, contact us at our Brisbane or Gold Coast offices for a free no-obligation consult.