The Crypto Romance Scam
There is a new twist on an old scam going around in California and across the country, and it is affecting young and old.
Romance scams are nothing new. A charming suitor gains your trust, and heart, and then gets you to send them money.
This new version adds cryptocurrency as the means towards that end.
Making the unsuspecting victim think they are both helping out the suitor and investing in cryptocurrency which will generate ongoing income.
As an example, a young woman with very low income recounted to me how she was instructed by her romantic suitor to borrow money from multiple institutions in order to fund a Crypto currency account. In total, she borrowed over $145,000 in a one month period. She was told the investment of the funds would generate more than enough income to cover her monthly payments on the loans.
Ultimately, of course, she was told to transfer the funds that she borrowed into an online “wallet” for easier investment. And then of course she never heard from the suitor or saw the money again.
She is left with $145,000 of obligations and gross income of approximately $2,000 per month which, after expenses and taxes leaves her with no money to make payments on these debts.
For more sad examples and details on this scam, see Katherine Skiba’s informative article in the AARP blog, Sex, Lies and Cryptocurrency.
And see California’s new webpage for a list of reported cryptocurrency scams .
What To Do If You Are A Victim Of The Scam
The first thing that should be done is to file a police report and contact the FBI to report what happened. This scam is being monitored and tracked by law enforcement, so the more information they have, the easier it will be to eventually stop the thieves.
Next, you need to heal emotionally. Process what happened and learn from the mistake. Get professional therapy if needed.
I am serious about this. It is very embarrassing and emotionally draining to go through such an ordeal.
Then, you need to address all the debt that you have obligated yourself to pay.
Can Bankruptcy Discharge Debts From A Cryptocurrency Scam?
The short answer is “yes”, but it is tricky and requires an understanding of the process by an experienced attorney.
The woman described above is in a real pickle, as are many in similar situations.
There is no way she can afford the monthly payments on the $145,000 of loans she borrowed.
Normally, bankruptcy can discharge unsecured debts such as unsecured loans and credit card debts.
But there is an exception to the bankruptcy discharge for debts that are incurred without the intent to repay; in other words, debts which are incurred through fraud.
How Does A Creditor Prove A Borrower’s Intent To Repay?
Bankruptcy courts look at the subjective intent to repay the debt in deciding whether a debt alleged to be incurred fraudulently, is dischargeable.
This is not determined by putting the borrower on the witness stand and asking “Hey, did you intend to repay this debt?”
The way this “intent to repay” is proved is through circumstantial evidence, such as the following:
- How recent were the charges/loans?
- What was the borrower’s current and anticipated income at the time the loans were taken out?
- How many payments were made after taking out the loans?
- What unexpected changes occurred in the borrower’s financial situation after taking out the loans?
In these types of scam cases, most of the required boxes are checked in favor of the creditor proving fraud.
In this case:
- The loans were all recent, and in large amount.
- The borrower had very low income, well below the ability to make payments on the loans.
- The borrower made very few, or no payments on any of the loans.
- And the borrower was not expecting a large increase in income.
The key is to establish, before an objection is filed, that the borrower honestly and reasonably believed they would be able to repay the debts.
Bankruptcy Can Eliminate Debts From A Cryptocurrency Scam, But You Need An Attorney That Knows How To Present Your Case
If an objection is filed, it will be necessary to go through a separate trial to defend.
And that can get very expensive–often more than the amount that is owed on the debt trying to be discharged.
So the trick is providing enough information on the initial bankruptcy filing papers that explain the circumstances and provide detailed facts on why, in this case, the debts should be discharged.
Bankruptcy attorneys across the country are seeing more of these cryptocurrency scam cases and are working with law enforcement and other agencies to elicit sufficient facts necessary to establish that debtors like the woman mentioned above should be able to discharge these debts because they were incurred, admittedly, out of weakness and bad judgment, but not fraud.
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