Can Cryptocurrency be legally garnished by creditors?

As cryptocurrencies become more popular, many people are turning to them as an alternative form of investment and payment. But what happens if you owe money and your creditor wants to garnish your cryptocurrency? Can they do it legally?

The answer is yes, in some cases. Under the Federal Bankruptcy Code, a creditor can ask for a court order to seize a debtor’s property, including cryptocurrencies. However, there are certain requirements that must be met before a garnishment can be granted.

One of the main requirements is that the creditor must have a judgment against the debtor. This means that the debtor has been found guilty of owing money and a court has issued an order requiring them to pay it back. Once the judgment is obtained, the creditor can then ask for a garnishment order, which allows them to seize property belonging to the debtor in order to satisfy the judgment.

Another requirement is that the property must be located within the United States. This means that if you owe money to a creditor outside of the US and have cryptocurrencies stored on a server located within the US, the creditor may be able to garnish those cryptocurrencies. However, if your cryptocurrencies are stored on a server located outside of the US, it may be more difficult for the creditor to locate and seize them.

It’s also important to note that there are certain types of property that cannot be garnished. For example, wages, social security benefits, and other forms of protected income cannot be garnished by a creditor. Similarly, certain types of assets, such as retirement accounts and life insurance policies, may not be subject to garnishment.

While it is possible for a creditor to garnish cryptocurrencies, there are some protections in place to prevent abuse. For example, under the Fair Debt Collection Practices Act (FDCPA), creditors are prohibited from engaging in abusive or harassing behavior when trying to collect debts. This includes threatening legal action, calling repeatedly, and making demands that are not supported by a judgment.

In addition, some states have their own laws and regulations that protect consumers from creditor garnishments. For example, California law requires creditors to obtain certain court orders before they can seize property from a debtor, and limits the amount of property that can be seized in certain cases.

So, while it is possible for a creditor to legally garnish cryptocurrencies, there are certain requirements that must be met and protections in place to prevent abuse. It’s important for consumers to understand their rights and protections when it comes to creditor garnishments, especially as the popularity of cryptocurrencies continues to grow.

Case Studies: Successes and Failures

There have been several high-profile cases involving cryptocurrency garnishments in recent years. One notable example is the case of Coinbase, a popular cryptocurrency exchange that was sued by the IRS for failing to report its users’ transactions. In 2019, the IRS obtained a court order allowing it to seize $56 million worth of Bitcoin from Coinbase in order to satisfy a judgment against one of its users.

On the other hand, there have also been cases where garnishments of cryptocurrency have failed. For example, in 2018, a judge in Texas ordered a man to forfeit $650,000 worth of Bitcoin as part of a criminal investigation. However, the man was able to appeal the decision and had the cryptocurrency returned to him after the case was dismissed.