BANKRUPTCY CORNER
BANKRUPTCY CORNER
Crypto Income and Presumptions of Abuse
JASON S. RIGOLI
In a chapter 7 consumer bankruptcy, meaning the debtor’ s debts are primarily consumer debts( debts for personal, family, or household purpose), there is a statutory formula,“ colloquially know as the‘ means test’” by which the debtor’ s current monthly income is calculated and“ once established, it is annualized and compared to the median income for a household of the same size in the same state.” In re Clark, Case No. 25-00984-5-PWM, 2025 Bankr. LEXIS 3109 at * 20-21, 2025 WL 3453611( Bankr. E. D. N. C. Dec. 1, 2025)( citing 11 U. S. C. §§ 101( 10A)( A) and 707( b)( 1) and( 2)). A debtor’ s“ current monthly income” is a backward-looking formula covering, generally, the 6-months preceding the filing of the bankruptcy case. 11 U. S. C. § 101( 10A)( A). If a debtor’ s income exceeds the applicable median income, then the debtor’ s calculate allowable expenses and if the net demonstrates an ability to fund payments to creditors, then there is a presumption of abuse. Id. at * 21.
In Clark, the question was what is“ income” and is the sale of cryptocurrency included in income. While“ current monthly income” is defined in the Bankruptcy Code,“ income” is not. The court defined“ income” as“‘ money from one’ s business, labor, or capital invested; gains, profits, salary, wages, etc.” Id. at * 28( citing In re Zahn, 391 B. R. 840, 845( B. A. P. 8th Cir. 2008)( citing Black’ s Law
Dictionary 764( 6th ed. 1990)( emphasis added in original)). The court continued its analysis and determined that the definition of“ income” is expansive, and statutorily not limited to taxable income, but only excludes Social Security and payments to victims of war crimes and terrorism. Id. at * 29( citing 11 U. S. C. § 101( 10A)( B)).
The debtors in Clark argued that cryptocurrency was legal tender and not an investment vehicle. Id. at * 26-27. The court made short shrift of the argument, stating there is“ no legal authority to support the argument that cryptocurrency is the equivalent of legal tender.” Id. at * 27( citation omitted). Accord Tucker v. Chase Bank USA, N. A., 399 F. Supp. 3d 105, 108( S. D. N. Y. 2019)(“ Cryptocurrency’ refers to " units of computer code, created by private computer programmers, that may be used as forms of currency by some private individuals. The creation of cryptocurrency is not subject to control or oversight by any governmental agency.... Cryptocurrencies are not legal tender.... Although certain types of cryptocurrency may be used as currency, cryptocurrencies are fundamentally private-sector technologies, computer codes, and software applications.’”).
Having determined that cryptocurrency is not legal tender, but rather an investment vehicle, the court in Clark concluded that the gains from the sale of cryptocurrency during the relevant 6-month period should be included in the calculations of the debtors’ current monthly income. 2025 Bankr. LEXIS 3109 at * 30. Accord Zahn, 391 B. R. at 845; In re
Curcio, 387 B. R. 278, 282( Bankr. N. D. Fla. 2008)( citing Comm’ r v. Glenshaw Glass
Co., 348 U. S. 426, 431, 75 S. Ct. 473, 99 L. Ed. 483, 1955-1 C. B. 207( 1955)).
In Clark, the debtors did not or could not present evidence of the amount originally invested, so the Court had to apply the total amount received by the debtors in the 6-month period. Id. at * 31. The result was the Court found a presumption of abuse under 11 U. S. C. § 707( b)( 1).
Conclusion
Consumer debtors and their counsel need to be mindful of their crypto assets. Determine what the acquisition price was for each crypto asset in a debtor’ s portfolio, and if an asset is liquidated within the applicable 6-month window prior to filing bankruptcy be sure to include the gain in the current monthly income calculation. Also, it is important to note that the“ income” has to be“ received” by the debtor, so it is not the increase in value of the crypto asset, but the gains received during that period that are included. Id at * 28-29( citing Curico, 282, 284).
This article was submitted by Jason S. Rigoli, Esq., Furr and Cohen, P. A., 2255 Glades Road, Suite 419A, Boca Raton, FL 33431, jrigoli @ furrcohen. com
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