When an Exchange Fails: Custodial Claims & Bankruptcy

An Exchange Balance Is a Record

A custodial exchange holds the private keys, the secret codes that control coins, for the assets deposited with it. The customer sees a balance in an app, but that balance is an entry in the exchange's own books, and the coins sit in wallets the exchange controls. If the exchange stops honouring withdrawals and enters bankruptcy, the question is whether the entry stands for coins the customer still owns or for a debt the exchange owes. The answer depends on the exchange's terms of service and on the law of the court hearing the case. This page explains how the rules and rulings read as of October 2026; it is not legal advice.

Bankruptcy in Plain Words

Celsius and FTX filed under Chapter 11 of the US Bankruptcy Code, on 13 July 2022 and 11 November 2022 respectively. The statute says a filing operates as a stay, applicable to all entities, of actions to recover claims that arose before it, and it creates an 'estate' made up of the debtor's interests in property. Anyone owed money, a creditor, files a claim by a deadline called the bar date; FTX's customer bar date was 29 September 2023.

Why the Fine Print Decides

On 4 January 2023 the Celsius judge held that the cryptocurrency in its Earn accounts belonged to the estate, because the terms of use that account holders accepted transferred all right and title to Celsius. Those holders became unsecured creditors, meaning creditors with no claim on particular assets. Separately, in the Mt. Gox case in Japan, creditors began to be repaid in bitcoin and bitcoin cash on 5 July 2024 under a court-approved plan. The two cases were heard in different courts and countries.

1. 11 November 2022: FTX's filing date, the day customer balances were measured.
2. 29 September 2023: the deadline to file customer claims.
3. 8 October 2024: the confirmed plan appears on the court docket as entry 26404.
4. 3 January 2025: the plan took effect.
5. 18 February 2025: the first distributions began, to the plan's convenience classes.

Estate Property and Dollar Claims

Section 541 of the Bankruptcy Code puts into the estate all legal or equitable interests of the debtor in property at the filing. For an exchange, the contest is whether customer coins were the exchange's property or held for customers. In its ruling of 4 January 2023 the Celsius court treated this as a contract question and found that every version of the terms of use from Version 5 onward granted Celsius 'all right and title' to the assets. It noted about 600,000 Earn accounts holding assets worth about USD 4.2 billion as of 10 July 2022, and added that even a loan would leave holders as unsecured creditors. The ruling dealt with Earn only: the debtors described their Custody, Withhold and Borrow programmes as reserved pending a later ruling, and individual contract defences were preserved.

Claims Are Fixed in Dollars

Section 502(b) directs the court, when a claim is objected to, to determine its amount in United States dollars on the date of the filing. FTX's claims portal shows balances as of 11 November 2022, with dollar values taken from a conversion table the bankruptcy court approved on 7 February 2024 (docket 7090). On 17 July 2026 FTX announced a fifth distribution of about USD 900 million, payable 31 July 2026, bringing cumulative distributions to 105 per cent of allowed Class 5A and 5B customer claims, 103 per cent of Classes 6A and 6B and 120 per cent of Class 7 convenience claims. The plan also provides post-petition interest from the filing date at a 'Consensus Rate'.

Different Courts, Different Routes

Mt. Gox followed another path. On 22 June 2018 the Tokyo District Court opened civil rehabilitation proceedings, which stayed the earlier bankruptcy proceedings; a creditors' meeting approved a plan and the court confirmed it in October 2021. Repayments in bitcoin and bitcoin cash began on 5 July 2024, and by 24 July 2024 more than 17,000 creditors had been repaid. On 16 October 2026 the trustee, with the court's permission, moved the repayment deadline from 31 October 2026 to 31 October 2027, because many creditors had not completed the procedures needed to receive repayment.

1. Celsius: Chapter 11 in New York, filed 13 July 2022; plan confirmed 9 November 2023 and effective 31 January 2024.
2. FTX: Chapter 11 in Delaware, filed 11 November 2022; plan effective 3 January 2025; five distribution rounds announced by 17 July 2026.
3. Mt. Gox: civil rehabilitation in Tokyo, opened 22 June 2018; plan confirmed in October 2021; repayments in bitcoin and bitcoin cash from 5 July 2024.

Trust, Debt or Estate Property?

Whether a customer is an owner or a creditor is a question of legal character. The Bankruptcy Code says property held only in legal title enters the estate only to the extent of that title, not to the extent of any equitable interest the debtor does not hold. If the contract transfers title, as the Celsius court found for Earn accounts, the customer holds a claim. The opinion also treated the word 'loan' as no obstacle: a loan creates a debtor-creditor relationship, and without a perfected security interest the lender holds only an unsecured claim. The 4 January 2023 ruling concerned Earn and did not address the Custody, Withhold and Borrow programmes; Celsius's confirmed plan carries General Custody and Withdrawable Custody claims as separate classes 6A and 6B.

What the EU Segregation Rules Say

MiCA, the EU crypto-asset regulation, addresses the same problem by rule, which makes a useful comparison with the Celsius contract approach. Article 70(1) requires providers that hold clients' crypto-assets to make adequate arrangements to safeguard clients' ownership rights, especially on the provider's insolvency, and to prevent use of client assets for their own account. Article 75(7) requires custody providers to segregate client holdings from their own and to keep them legally segregated from the provider's estate, 'so that creditors of the crypto-asset service provider have no recourse' to them. Article 75(8) makes the provider liable for losses attributable to it, capped at the asset's market value when the loss occurred.

UK Property Law: A Third Category

In England and Wales and Northern Ireland, the Property (Digital Assets etc) Act 2025 received Royal Assent on 2 December 2025. Section 1 says a thing, including a digital or electronic one, is not prevented from being an object of personal property rights merely because it is neither a thing in possession nor a thing in action. It followed a Law Commission final report of 28 June 2023 and a supplemental report and draft Bill of 30 July 2024 recommending a 'third category' of personal property, with its boundaries left to the courts. The Act has two sections and does not itself say how an exchange's customer balances are treated in an insolvency.

Claims Trading, Forfeiture and Clawbacks

FTX's support pages describe how claims move and lapse. A sale of a claim needs a Notice of Transfer of Claim on the public docket, which starts a 21-day period for either party to dispute it. A distribution is forfeited if an original holder files no tax form within 90 days of the first notice, and a holder who has not onboarded with a distribution provider within six months of the distribution date may forfeit it. Separately, section 547(b) lets a trustee avoid certain transfers to creditors made while the debtor was insolvent within 90 days before the filing, or within one year for insiders, and section 547(f) presumes insolvency in that 90-day window. Celsius's case page lists a notice on settlement of 'withdrawal preference exposure' for account holders.