Can Cryptocurrency Be Garnished?

Cryptocurrency can be garnished by a judgment creditor, but the process is far more complicated than garnishing a traditional bank account. Bitcoin and other digital assets held on a U.S. exchange like Coinbase are vulnerable to the same type of writ of garnishment that creditors use against banks. Cryptocurrency held in a self-custody wallet, however, presents a fundamentally different challenge because there is no third-party intermediary for the creditor to serve.

The misconception that cryptocurrency is beyond the reach of creditors persists because the technology was originally designed to operate outside traditional financial systems. In reality, courts treat cryptocurrency as property, and judgment creditors have multiple tools to discover and reach digital assets. The legal question is not whether cryptocurrency can be seized but how practical it is for a creditor to do so given the specific way the debtor holds it.

Cryptocurrency on Exchanges: Vulnerable to Garnishment

When a debtor holds cryptocurrency on a centralized exchange such as Coinbase, Kraken, or Gemini, the relationship between the exchange and the customer resembles a banking relationship. The exchange holds the debtor’s digital assets and is obligated to liquidate or transfer them upon the customer’s request. A judgment creditor can serve a writ of garnishment on the exchange, and the exchange must freeze all accounts associated with the debtor.

This process mirrors traditional bank account garnishment. The creditor files a motion under Chapter 77 of the Florida Statutes, the clerk issues the writ, and the creditor serves it on the exchange. The exchange freezes the debtor’s accounts, converts the cryptocurrency to U.S. dollars, and turns over the proceeds to the creditor after the court enters a Final Judgment of Garnishment.

There is limited case law specifically addressing cryptocurrency exchange garnishment, but courts that have considered the issue have treated exchanges as functional equivalents of banks for garnishment purposes. In one Ohio case, a creditor successfully garnished over $12,000 in cryptocurrency from an exchange after identifying the debtor’s account through bank statements obtained via subpoena. The exchange fully complied with the garnishment order, converted the cryptocurrency, and issued a check for the proceeds.

The Jurisdictional Complication

Even when cryptocurrency is held on a U.S. exchange, the jurisdictional rules that apply to out-of-state bank accounts create a potential obstacle. Florida courts require both personal jurisdiction over the debtor and in-rem jurisdiction over the property to execute a garnishment. Coinbase, the largest U.S. exchange, is headquartered in California with no physical branch offices in Florida. It maintains a registered agent in Florida, but whether that agent’s presence is sufficient to give a Florida court jurisdiction over accounts maintained at Coinbase’s California facilities is an open question.

Under the same reasoning Florida courts have applied to national banks, a creditor may need to domesticate the Florida judgment in California before garnishing a Coinbase account. This adds time, expense, and procedural complexity. For foreign exchanges operated entirely outside the United States, garnishment through any U.S. court is effectively impractical. A creditor would need to domesticate the judgment in the exchange’s home country and pursue collection under that country’s legal system.

Self-Custody Wallets: A Different Problem Entirely

Cryptocurrency held in a self-custody wallet presents the most significant challenge for creditors. A self-custody wallet stores the debtor’s private keys on a hardware device or software application that the debtor controls directly. There is no third-party custodian, no exchange, and no intermediary that owes a debt to the account holder. Without a garnishee to serve, the traditional writ of garnishment is useless.

This does not mean the cryptocurrency is legally protected. Courts treat cryptocurrency as property regardless of how it is stored. But the enforcement mechanism shifts from garnishment to other collection tools. A creditor pursuing self-custodied cryptocurrency typically relies on turnover orders and contempt proceedings rather than writs of garnishment.

A turnover order is a court directive requiring the debtor to deliver specific property to satisfy a judgment. In the cryptocurrency context, this means the court orders the debtor to transfer the digital assets to a wallet controlled by the creditor or a court-appointed receiver. If the debtor refuses, the court can hold the debtor in civil contempt, which can result in fines or incarceration until the debtor complies.

The creditor can also seek a court order requiring the debtor to disclose all private keys, seed phrases, and wallet addresses. Failure to comply with such an order constitutes contempt. Courts have ordered debtors to reveal passwords and digital credentials in other contexts, and there is no reason the same principle would not apply to cryptocurrency credentials.

Post-Judgment Discovery: The Debtor Must Disclose

Regardless of how cryptocurrency is stored, a judgment debtor has a legal obligation to disclose all assets during post-judgment discovery. The creditor can compel the debtor to testify under oath about cryptocurrency holdings, transaction history, wallet addresses, exchange accounts, and the location of private keys. This testimony typically occurs during a debtor’s examination, where the debtor answers questions before a judge.

A debtor who lies about cryptocurrency holdings during post-judgment discovery commits perjury. A debtor who conceals assets by transferring cryptocurrency to a new wallet after a judgment is entered risks a fraudulent transfer claim. The blockchain’s public ledger makes such transfers traceable, even if the debtor’s identity behind a wallet address requires forensic analysis to confirm.

Creditors with substantial claims increasingly use blockchain forensic firms to trace cryptocurrency transactions and identify wallet addresses associated with a debtor. These firms analyze the public blockchain ledger to follow the flow of funds from known exchange accounts to self-custody wallets and other destinations. The transparency of blockchain technology means that cryptocurrency is not truly anonymous—it is pseudonymous, and with sufficient effort, transactions can often be linked to specific individuals.

Cryptocurrency in Bankruptcy

A debtor who files for bankruptcy must disclose all cryptocurrency holdings on their bankruptcy schedules. The bankruptcy trustee can liquidate non-exempt cryptocurrency to pay creditors. Since 2014, the IRS has classified cryptocurrency as property for tax purposes, and bankruptcy courts treat it the same way.

Florida law does not provide any specific exemption for cryptocurrency. Unlike retirement accounts protected under § 222.21 or annuities protected under § 222.14, there is no Florida statute that shields digital assets from creditor claims. Cryptocurrency held in a standard self-custody wallet or exchange account is a non-exempt asset, fully exposed to collection.

The only exemption that might apply is tenants by entireties. If a married couple jointly owns cryptocurrency through a shared exchange account titled as tenants by the entireties, the assets may be protected from a judgment against only one spouse. However, most cryptocurrency exchanges do not offer joint accounts in the traditional sense, and the application of entireties ownership to digital assets remains largely untested in Florida courts.

Protecting Cryptocurrency from Creditors

The most effective legal strategy for protecting cryptocurrency from judgment creditors is placing it within a structure that removes it from the debtor’s direct ownership before any claim arises.

An offshore trust funded with cryptocurrency provides the strongest available protection. A Cook Islands trust, for example, places the digital assets under the control of a foreign trustee beyond the jurisdiction of U.S. courts. A creditor would need to re-litigate the underlying claim in the Cook Islands under a legal framework that heavily favors the trust’s integrity. The Cook Islands trust structure is particularly well-suited for cryptocurrency because the assets can be held in offshore exchange accounts or multi-signature wallets controlled by the foreign trustee.

Domestically, holding cryptocurrency inside an exempt account type offers some protection. A self-directed IRA that holds cryptocurrency is protected under Florida Statute § 222.21, provided the account complies with the statute’s requirements. Several custodial platforms now allow IRA holders to invest in Bitcoin and other digital assets within a tax-advantaged retirement account. The assets inside the IRA receive the same exemption as any other IRA investment.

Converting cryptocurrency to an exempt asset class is another approach. Florida’s blanket annuity exemption under § 222.14 protects annuity contracts and their proceeds from creditor claims. A debtor who liquidates cryptocurrency and purchases a Florida annuity has converted a non-exempt asset into an exempt one. The timing of this conversion matters. A conversion made before any claim exists is generally defensible, while a conversion made after a lawsuit or judgment may be challenged as a fraudulent conversion.

IRS and Federal Agency Collection

The IRS treats cryptocurrency as property and has aggressively pursued taxpayers who fail to report digital asset holdings. The IRS Criminal Investigation division has seized billions of dollars in cryptocurrency and has developed sophisticated blockchain tracing capabilities.

Federal agencies are not bound by the state jurisdictional limitations that restrict private creditors. The IRS can levy cryptocurrency held on any exchange, domestic or foreign, without domesticating a judgment in another state. The IRS can also compel exchanges to produce customer records through John Doe summonses, which the agency has successfully used against Coinbase and other platforms to identify taxpayers who failed to report cryptocurrency transactions.

For debtors facing federal tax obligations, cryptocurrency held on any U.S. exchange is fully exposed. Self-custodied cryptocurrency is harder for the IRS to seize directly, but the agency can obtain turnover orders and use civil contempt to compel disclosure, just as any other creditor can.

Practical Considerations for Garnishment Defense

If a creditor serves a writ of garnishment on a cryptocurrency exchange, the debtor should respond immediately by filing a Claim of Exemption if any portion of the frozen assets qualifies for protection. Retirement account holdings on the same platform, for example, may be exempt even though the taxable exchange account is not.

The debtor should also examine whether the creditor properly followed the procedural requirements of Chapter 77. Writs that fail to comply with statutory notice requirements or that are served on an exchange without proper jurisdiction can be challenged and dissolved.