Cryptocurrencies and Bankruptcy: A Guide for Investors in Trouble

Bankruptcy (formerly called insolvency) is the judicial procedure through which an insolvent debtor can reorganize or liquidate their debts. If you own cryptocurrencies and are facing insolvency, it’s essential to understand how these assets are treated in the process.

What is personal bankruptcy?

Since the 2022 reform of the Bankruptcy Law (the "Second Chance Law"), individuals in Spain can file for bankruptcy and obtain the exoneration of unsatisfied liabilities (EPI): the forgiveness of debts that cannot be paid.

Are cryptocurrencies part of the active estate?

Yes. The debtor's assets that form the active estate of the bankruptcy include all their property and patrimonial rights, including cryptocurrencies.

The bankruptcy administrator (the person appointed to manage the process) has access to:

• Accounts in centralized exchanges (they may require the debtor to transfer or liquidate them).
• For self-custody wallets: if the debtor does not provide access, they may be sanctioned. This is considered asset concealment.

Valuation of cryptocurrencies in bankruptcy

Cryptocurrencies are valued at their market price at the time of the inventory of the bankruptcy. Since prices fluctuate:

• If the market drops between the declaration of bankruptcy and liquidation, creditors receive less.
• The bankruptcy administrator may decide to liquidate quickly to avoid volatility.

Debts secured with crypto (DeFi collateral)

If you have debts in DeFi protocols secured by crypto collateral (e.g., a Maker vault with ETH):

• In the bankruptcy, the administrator may choose to repay the loan and recover the collateral (which becomes part of the active estate).
• Alternatively, they may abandon the collateral if the debt exceeds the collateral's value.

Debt forgiveness: Does it affect pending crypto gains?

If you owe taxes to the AEAT for undeclared crypto gains:

• Tax debts cannot be forgiven under the Second Chance Law (they are excluded from the EPI).
• This means that even after bankruptcy, you will still owe income tax or penalties to the AEAT.

Tax implications for the bankrupt individual

Deductible losses

If the bankruptcy results in the liquidation of crypto assets at prices lower than their acquisition cost:

• The difference between the acquisition cost and the liquidation price → deductible capital loss in income tax.
• This can offset gains from the same period or be carried forward for up to 4 years.

What if the exchange assigned to the bankruptcy also goes bankrupt?

This happened to clients of FTX Spain who were also undergoing bankruptcy. The capital loss from the bankrupt exchange is added to the losses from the individual's own bankruptcy.

Protecting crypto in bankruptcy: Is it possible?

It is not legal to protect crypto assets to shield them from creditors. This is considered bankruptcy fraud:

• Transferring crypto to family members' wallets just before filing for bankruptcy to "hide" them.
• Selling crypto below market value to related parties.
• Creating DeFi pools (pretending it’s an "investment") just before bankruptcy to disguise the asset.

These actions can result in the bankruptcy being declared fraudulent and may lead to criminal liability.

The Second Chance and the crypto investor

If you are an investor who went bankrupt due to crypto losses (e.g., leveraged investment gone wrong, exchange account bankruptcy), you can access the Second Chance procedure:

1. Attempt at an out-of-court settlement (PASC/PREPA).
2. Bankruptcy proceedings.
3. Liquidation of assets.
4. Application for EPI.
5. Forgiveness of private debts (excluding tax and alimony debts).

Common mistakes to avoid

Updated: April 2026 | Fiscal Year: 2025