Bitcoin Debt Collection in the US

[Inedible]

What is required to get a legal judgement of debt against someone for a Bitcoin debt?

Assuming someone's online identity could be traced to their real life identity, what legal acrobatics would need to be performed to have a legally enforceable judgement put in place?

[1714848361]

1714848361

[1714848361]

1714848361

[1714848361]

1714848361

[1714848361]

1714848361

[1714848361]

1714848361

[arklan]

What is required to get a legal judgement of debt against someone for a Bitcoin debt?

Assuming someone's online identity could be traced to their real life identity, what legal acrobatics would need to be performed to have a legally enforceable judgement put in place?

legal definition that bitcoin, like other virtual currencies (world of warcraft gold, eve online ISK, second life lindens) have value and can represent debt.

there may be precedence from some warcraft sale or something, but i'm not familiar with anything.

[Inedible]

With all the legislation coming in regarding virtual currencies I see there being good grounds for it having value.


Edit: Put it this way, the government will be happy enough to collect taxes from any proceeds of Bitcoin 'investments'. So if anyone has paid taxes on this, I'd be interested to hear.

[Inedible]

The only precedent I know of is non-US (it's Dutch): http://www.technollama.co.uk/dutch-supreme-court-declares-virtual-goods-are-property

I'm sure it won't be long till the US government takes a similar view (if it doesn't already do so implicitly.

[DeathAndTaxes]

No different than if someone didn't honor any other contract (verbal or otherwise).

Prove there is a contract, prove it is legal, prove it was broken.

Example in gold (because everyone for some reason thinks bitcoins are special):
You loan me 1 ounce of gold @ 6% annually (in mg of gold) with monthly periodic payments.  I don't repay.  You prove to the court the loan exists, I received the 1 ounce of gold, and broke the contract.  The court CAN'T award damages in gold however you can "prove" the value of gold by taking current exchange rate so the court might award you a judgement for ~$1,500 in damages in LEGAL TENDER.   If/when I satisfy that judgement you could take that legal tender (known as US dollars) and buy some "new gold" and thus are made whole (at least in theory).

Now replace gold with Bitcoin.  It works the same way.  To my knowledge no court anywhere has ever ruled that virtual currency don't have value.  Until that happens they do.  If you suffer damages (in legal sense of the word) you are entitled to recover those damages.

Now in the real world you have four major problems:
a) Usury.  Simple version, just about all bitcoin loans are usurious.  Doesn't matter if you and the borrower agree to the rate they are still unlawful under state law (in US).  It doesn't matter if the borrower begs and pleads to let him pay you 36% interest. No court is going to "assist" you in enforcing an unlawful contract.  Period.  A drug dealer can't sue another drug dealer for breaching a contract by not delivering a kilo of cocaine.  The courts simply don't aid in settling unlawful matters (it might be better if they did but that is another story).  If you lend at usurious rates you have no (legal) recourse when not repaid.  Note this isn't a morality lesson on what is a "fair" interest rate just pointing out the fact.  

b) proving identity.  generally online this is going to be very tough. 99.9% of the time you will be filing suit in small claims court and the court isn't going to give you hours to "prove" by email logs and PGP that the person you are suing actually entered into the contract and took possession of the lent funds.  Bitcoins psuedo-anonymous nature works against you here.  If I lend you $500 I can make a custom check which on the endorsement area indicates "by signing and depositing this check you agree to the terms of promissory note 12345".  Then prohibit the check from being cashed, or endorsed to any third party.  Your only option to get funds is to deposit it to YOUR bank account.  That paper trail makes if very hard to say "it wasn't me".

c) small claims court.  Generally the only option which makes economical sense is small claims court however while you can sue an out of state resident in your states court the judgement is for all intents and purposes worthless.  The defendants state isn't going to assist with recovery.  So this means filing in the debtors state.  So you have added cost BUT most small claims courts cap damages at $5K.  So really there is a narrow range of loans where it is worth it.  

d) deadbeats.  Judgments only matter if the person has something to lose.  For example getting a judgement against a plumber who did shoddy work would allow you to put a lien on his license.  This public record will allow other customers to know he isn't trustworthy, it will also affect his bond pricing, and if the judgement are large enough or numerous enough the state/city could pull his license.  The plumber has a vested interested in paying the judgement (and thus removing the public record).  Joe 4chan assclown doesn't really care.  No a judgement doesn't allow you seize his property, probably doesn't allow you to garnish his wages, it doesn't allow you to prevent him from spending money.  If he doesn't pay you well the judgement isn't worth the paper it is printed on.

TL/DR:
Think before you lend, most delinquent debt is never recovered. Not even by professionals.  Delinquent credit card debt (with signed contracts, cards delivered to the persons, and months if not years of usage and payments) routinely sells for pennies on the dollar.  Yes $10,000 CC debt might sell (as part of a portfolio) for $500.  The CC company will write off a $9,500 loss.  Why?  The odds are they would recover even less.  


On edit:
Standard disclaimer, I am not a lawyer.  Always seek qualified legal counsel, your situation may be different.  The post should be seen as educational and not legal advice.

[Inedible]

No different than if someone didn't honor any other contract (verbal or otherwise).

Prove there is a contract, prove it is legal, prove it was broken.

Example in gold (because everyone for some reason thinks bitcoins are special):
You loan me 1 ounce of gold @ 6% annually (in mg of gold) with monthly periodic payments.  I don't repay.  You prove to the court the loan exists, I received the 1 ounce of gold, and broke the contract.  The court CAN'T award damages in gold however you can "prove" the value of gold by taking current exchange rate so the court might award you a judgement for ~$1,500 in damages in LEGAL TENDER.   If/when I satisfy that judgement you could take that legal tender (known as US dollars) and buy some "new gold" and thus are made whole (at least in theory).

Now replace gold with Bitcoin.  It works the same way.  To my knowledge no court anywhere has ever ruled that virtual currency don't have value.  Until that happens they do.  If you suffer damages (in legal sense of the word) you are entitled to recover those damages.

Now in the real world you have four major problems:
a) Usury.  Simple version, just about all bitcoin loans are usurious.  Doesn't matter if you and the borrower agree to the rate they are still unlawful under state law (in US).  It doesn't matter if the borrower begs and pleads to let him pay you 36% interest. No court is going to "assist" you in enforcing an unlawful contract.  Period.  A drug dealer can't sue another drug dealer for breaching a contract by not delivering a kilo of cocaine.  The courts simply don't aid in settling unlawful matters (it might be better if they did but that is another story).  If you lend at usurious rates you have no (legal) recourse when not repaid.  Note this isn't a morality lesson on what is a "fair" interest rate just pointing out the fact.  

b) proving identity.  generally online this is going to be very tough. 99.9% of the time you will be filing suit in small claims court and the court isn't going to give you hours to "prove" by email logs and PGP that the person you are suing actually entered into the contract and took possession of the lent funds.  Bitcoins psuedo-anonymous nature works against you here.  If I lend you $500 I can make a custom check which on the endorsement area indicates "by signing and depositing this check you agree to the terms of promissory note 12345".  Then prohibit the check from being cashed, or endorsed to any third party.  Your only option to get funds is to deposit it to YOUR bank account.  That paper trail makes if very hard to say "it wasn't me".

c) small claims court.  Generally the only option which makes economical sense is small claims court however while you can sue an out of state resident in your states court the judgement is for all intents and purposes worthless.  The defendants state isn't going to assist with recovery.  So this means filing in the debtors state.  So you have added cost BUT most small claims courts cap damages at $5K.  So really there is a narrow range of loans where it is worth it.  

d) deadbeats.  Judgments only matter if the person has something to lose.  For example getting a judgement against a plumber who did shoddy work would allow you to put a lien on his license.  This public record will allow other customers to know he isn't trustworthy, it will also affect his bond pricing, and if the judgement are large enough or numerous enough the state/city could pull his license.  The plumber has a vested interested in paying the judgement (and thus removing the public record).  Joe 4chan assclown doesn't really care.  No a judgement doesn't allow you seize his property, probably doesn't allow you to garnish his wages, it doesn't allow you to prevent him from spending money.  If he doesn't pay you well the judgement isn't worth the paper it is printed on.

TL/DR:
Think before you lend, most delinquent debt is never recovered. Not even by professionals.  Delinquent credit card debt (with signed contracts, cards delivered to the persons, and months if not years of usage and payments) routinely sells for pennies on the dollar.  Yes $10,000 CC debt might sell (as part of a portfolio) for $500.  The CC company will write off a $9,500 loss.  Why?  The odds are they would recover even less.  

Thanks for that very detailed answer.

[DeathAndTaxes]

What is the practice in claiming the principle back for usurious loans?

It depends on the state but in most states not only do you have no legal standing to get the principal back but the borrower can sue you for any interest paid.  Some states allow the borrower to seek treble damages (i.e. 3x the interest charged) under certain conditions (like trying to enforce the unlawful contract by recovery, taking collateral, or seeking judgement in court).  In most states offering a usurious loan is a felony, loan sharking, although it is rarely enforced.

TL/DR: usury is illegal.  If you operate outside the law it is HIGHLY foolish to then seek legal protection wouldn't you say?   I mean it would be like suing a SR vendor because he sold you low quality illegal drugs.  While you may laugh, the courts see any unlawful contract as similar.

[Inedible]

What is the practice in claiming the principle back for usurious loans?

It depends on the state but in most states not only do you have no legal standing to get the principal back but the borrower can sue you for any interest paid.  Some states allow the borrower to seek treble damages (i.e. 3x the interest charged) under certain conditions (like trying to enforce the unlawful contract by recovery, taking collateral, or seeking judgement in court).  In most states offering a usurious loan is a felony, loan sharking, although it is rarely enforced.

TL/DR: usury is illegal.  If you operate outside the law it is HIGHLY foolish to then seek legal protection wouldn't you say?   I mean it would be like suing a SR vendor because he sold you low quality illegal drugs.  While you may laugh, the courts see any unlawful contract as similar.

Assuming no usury, what are the hurdles to successfully suing someone for the return of their Bitcoins?

[Inedible]

Are you saying that if I can prove I paid for drugs on SR and the vendor didn't deliver I cannot sue him and get my money back? (even though doing so could lead to my own prosecution). Wow

You're doing something illegal so why would you expect to be shielded by law?

[DeathAndTaxes]

Because everyone is shielded by law, even criminals. At least in my country we are.

On the flip-side we are required to pay income tax on criminally earned income as well.

You are in the US also but the courts don't mediate unlawful contracts. 

[threeip]

Assuming no usury, what are the hurdles to successfully suing someone for the return of their Bitcoins?

Proving that they still have funds? Perhaps if you tied the claim to a fiat currency loss, you could sue for USD 

[DeathAndTaxes]

Assuming no usury, what are the hurdles to successfully suing someone for the return of their Bitcoins?

Proving that they still have funds? Perhaps if you tied the claim to a fiat currency loss, you could sue for USD 

It doesn't matter if they still have the funds or not.  In awarding a judgement the court could careless if the debtor spent the BTC on "hookers & coke".  If the debt is legit and creditor can prove so in court then the court would award damage in legal tender (USD in US court) for the VALUE of the BTC (or gold, or original Rembrandt painting, or property at 123 main street Oklahoma City, OK) owed.

[Inedible]

Assuming no usury, what are the hurdles to successfully suing someone for the return of their Bitcoins?

Proving that they still have funds? Perhaps if you tied the claim to a fiat currency loss, you could sue for USD 

It doesn't matter if they still have the funds or not.  In awarding a judgement the court could careless if the debtor spent the BTC on "hookers & coke".  If the debt is legit and creditor can prove so in court then the court would award damage in legal tender (USD in US court) for the VALUE of the BTC (or gold, or original Rembrandt painting, or property at 123 main street Oklahoma City, OK) owed.

Would $20K be enough to sue someone in court for their Bitcoin losses do you think? (I realise this is like asking someone how long is a piece of string).

Their online identity would need to be proven to be the real life person and that some form of 'agreement' had been reached.

(Assuming an average priced lawyer was used)

[DeathAndTaxes]

Possibly.  $20K excludes small claims court unless you are willing to settle for only $5K recovered (most small claims courts limits reward to ~$5K).  If the contract is valid, not usurious, doesn't involve any unlawful securities, and you have solid proof of identity and transfer of funds it may be worth it.

Expect to spend a few ($1K to $3K) in legal fees although most attorneys will do a introductory consultation and evaluation of your case merit for much less.  For damages in the tens of thousands some lawyers will offer to work as a % basis (usually 30% to 40%) however given the uncertain nature of your case I doubt you will find one willing to do so in this case.

[Inedible]

Possibly.  $20K excludes small claims court unless you are willing to settle for only $5K recovered (most small claims courts limits reward to ~$5K).  If the contract is valid, not usurious, doesn't involve any unlawful securities, and you have solid proof of identity and transfer of funds it may be worth it.

Expect to spend a few ($1K to $3K) in legal fees although most attorneys will do a introductory consultation and evaluation of your case merit for much less.  For damages in the tens of thousands some lawyers will offer to work as a % basis (usually 30% to 40%) however given the uncertain nature of your case I doubt you will find one willing to do so in this case.

Thanks for all the info

[Chuck Finley]

Assuming no usury, what are the hurdles to successfully suing someone for the return of their Bitcoins?

Essentially the same as anything - you need to prove that you have a cause of action (ex: breach of contract) sufficient to grant the relief you seek (monetary award, return of property, etc.). You'd also need to know the person or company's real name as it would be pretty hard to get that information from just a bitcoin address (also you'd need a person/company to make the order against as there's no bank or central authority that a court can compel to return the bitcoins).  If it's a contract you don't necessarily need to ask the court to unwind the contract (give you back what you put in) but you could ask, for example, for the court to force the person to complete the contract (ex: give you the money you traded the bitcoins for instead of your bitcoins back)

Courts have a history of midunderstanding/screwing up technology-related decisions. Expect to have to explain bitcoin in detail and expect to be frustrated that the judge won't understand what it is (although you could get lucky). For this reason, depending on the fact scenario, you might have more success suing for monetary damages instead of the return of property (crypto currencies are still very much a grey area).

In most jurisdictions I believe the successful party is entitled to costs as well (basically if you had to sue someone and you were right they should pay your court costs). However in practice costs are almost never awarded in full (you'd get awarded a fraction of your legal costs) and even then getting the money out of the person can be difficult.

Which brings up another point - getting a judgment against someone is only the FIRST step in your battle. Assuming there are no appeals you can then try to enforce against the person but just because you show up at someone's door with a court order for them to do something (ex: pay you money) doesn't mean they will. It is common for parties to obtain judgments which they will never collect on .

For damages in the tens of thousands some lawyers will offer to work as a % basis (usually 30% to 40%) however given the uncertain nature of your case I doubt you will find one willing to do so in this case.

It's probably not the amount of money but the source that matters. I don't think most lawyers would work on contingency even if the claim was for $10,000,000 if the defendant is a person without significant resources (as I said above, getting a million dollar judgment doesn't mean anything if you can't collect - can't get blood from a stone). You're probably thinking of personal injury lawsuits which, while they can easily run from the tens of thousands to the millions the defendants are usually insurance companies who are far less likely to frustrate a judgment - not including appeals ha ha. Basically if the lawyer puts thousands of dollars of work into a file he wants to be able to take his slice of the pie at the end.