Potential preference exposure for withdrawing crypto

Crypto customers who withdraw their crypto assets from an exchange or custodian within 90 days of the exchange or custodian's bankruptcy filing may be sued to return those crypto assets as preferential transfers under section 547 of the Bankruptcy Code. There are a number of considerations relevant to whether those claims will succeed. This article briefly identifies certain of those considerations.

Preference law basics

The purpose of the preference provisions of Section 547 is to ensure that all similarly situated creditors are treated equally, and that no creditor is "preferred" to others in the run-up to a bankruptcy filing. In practice, many question whether preference litigation results in anything more than additional fees for professionals, but there is little doubt that preference litigation will continue.