Crypto Asset LawEnforcement and Bankruptcy LawInformation Technology LawThe Debtor’s Obligation to Declare Crypto Assets in Enforcement Proceedings

In enforcement proceedings, the debtor’s declaration of assets does not cover only traditional assets such as a house, a vehicle, a bank account or immovable property. The debtor must declare all assets, receivables and rights of economic value that may be subject to attachment, as well as their income and how they intend to repay the debt.

With regard to crypto-assets, the fundamental issue is not whether they should be included in the declaration of assets, but under which legal category and to what extent they should be disclosed. Whether a crypto-asset is classified as movable property, a receivable, other rights or an independent intangible asset does not negate the obligation to declare it. On the contrary, any uncertainty regarding legal classification should not be interpreted in a way that narrows the debtor’s obligation to provide details.

The Scope of the Asset Declaration Pursuant to Article 74 of the Enforcement and Bankruptcy Code

For the purposes of Article 74 of the Enforcement and Bankruptcy Code, the declaration of assets comprises: the debtor’s obligation to notify the enforcement office, either in writing or orally, of the type, nature and characteristics of the assets, receivables and rights held by the debtor or by third parties, which are sufficient to cover the debt; all forms of income and earnings; the sources of livelihood commensurate with their standard of living; and how the debt can be repaid.

This provision is broad enough to cover crypto-assets for three reasons:

• A crypto-asset is an element of assets possessing economic value.
• A crypto-asset held in an exchange account is assessed together with the debtor’s claim or right to a payment held with the platform.
• A crypto asset held in a non-custodial wallet constitutes economic value under the debtor’s control, even if it is not physically held by a third party.

As regards the obligation to declare, it may not always be sufficient for the debtor simply to state, ‘I have crypto assets’. In the declaration of assets, the type and nature of the amount sufficient to cover the debt must be specified. Therefore, to the extent possible, the platform on which the asset is held, the type of crypto asset, the approximate amount, whether the wallet is custodial or non-custodial, and its availability for use to settle the debt should be disclosed.

However, the debtor cannot be expected to provide absolute certainty. For example, in the case of an asset that is effectively inaccessible due to a lost private key, the debtor must disclose the information they know and can verify. However, the difficulty of accessing the asset does not in itself justify its failure to be declared.

Classification of Crypto Assets as ‘Movable Property’ or ‘Receivables’

It is a matter of debate whether crypto-assets can be classified as tangible movable property in the classical sense. Under Article 3 of the Capital Markets Law No. 6362, crypto-assets are defined as intangible assets that can be created and stored using distributed ledger technology or similar technology, and which may represent value or rights.

This definition demonstrates that a crypto asset is not a tangible object; however, it cannot be regarded as data entirely devoid of value or rights either. What is decisive in terms of asset declaration is not which technical category the crypto asset falls into under the Turkish Civil Code, but whether it represents the debtor’s economic capacity.

There are two layers to crypto-assets held in an exchange account. The first layer is the crypto-asset visible on the blockchain. The second layer is the debtor’s right to request the withdrawal, transfer or delivery of the crypto-asset arising from the contract entered into with the exchange. If the exchange holds the private keys or customer assets within its own custody system, this contractual right is more readily classified as a claim or other right of demand under enforcement law.

In the case of a non-custodial wallet, there may be no obligation to deliver that the debtor can directly claim from a third party. Nevertheless, the crypto asset held at the address controlled by the debtor’s private key retains the status of economic value that must be declared in the asset declaration.

Consequently, approaches such as ‘cryptocurrency is not a chattel and therefore need not be declared’ or ‘an exchange account is not a claim and therefore need not be reported in enforcement proceedings’ are incorrect. As Article 74 of the Enforcement and Bankruptcy Code lists property, claims and rights separately, crypto-assets do not fall outside the scope of declaration, regardless of the category into which they are placed.

Exemption from Seizure under Article 82 of the Enforcement and Bankruptcy Code

Article 82 of the Enforcement and Bankruptcy Code stipulates that certain assets are exempt from attachment. Exceptions under this provision include items necessary for the debtor to carry on their profession, personal effects belonging to the debtor and their family, household goods for common use, certain agricultural implements, essential means of subsistence, a dwelling appropriate to their circumstances, and student grants.

It is not possible to classify a crypto asset as ‘essential household goods’. A crypto asset does not constitute household goods even if it is held in a hardware wallet kept at home. The hardware wallet itself may be assessed separately as an electronic device; however, the device must be distinguished from the crypto asset held within the wallet.

Similarly, it is generally not possible for a crypto asset to be classified as a ‘professional tool’. The debtor’s claim that they earn their livelihood through the buying and selling of crypto assets does not result in all crypto assets becoming exempt from attachment. The exception for professional equipment under Article 82 of the Enforcement and Bankruptcy Code relates to the essential tools required for a debtor whose economic activity is primarily based on manual labour to continue practising their profession. Cryptocurrencies held for investment purposes do not fall within the scope of this exception.

A computer, security device or piece of business equipment used in the course of commercial activities conducted on a cryptocurrency platform may be examined separately in the specific circumstances. However, this assessment relates not to the cryptocurrency itself, but to the physical tools used to carry out the activity.

Consequences of Failing to Declare a Crypto Asset

An important distinction must be made under Article 337 of the Enforcement and Bankruptcy Code. The legislative text provides for a prison sentence of between three months and one year for making false statements in an asset declaration. This sanction should not, strictly speaking, be referred to as ‘coercive imprisonment’ in every instance. Coercive imprisonment is a specific type of sanction imposed to ensure the fulfilment of an obligation and which may cease once the obligation has been fulfilled. However, with regard to the provision on false declarations under Article 337 of the Enforcement and Bankruptcy Code, the current wording of the statutory text must be taken as the basis.

The following elements are relevant for the imposition of sanctions:

• A declaration of assets must have been duly requested from the debtor,
• The debtor’s declaration must be false,
• The undisclosed crypto-asset must genuinely belong to the debtor or be under their control,
• The creditor must have lodged a complaint within the prescribed time limit and in accordance with the prescribed procedure,
• An assessment of the debtor’s intent and the content of the declaration.

If, despite the debtor stating ‘I have no crypto assets whatsoever’, a trading account registered in their name, bank-to-exchange transfers, a public wallet address or a wallet verified by their own correspondence comes to light, an allegation of a false declaration may arise.

Conversely, merely asserting that a blockchain address belongs to the debtor is not always sufficient. Ownership of the address must be supported by bank records, exchange records, device analysis, electronic correspondence, the debtor’s admission or other technical evidence.

As regards the period after 2024, there is no provision in the legislative database indicating that Article 337 of the Enforcement and Bankruptcy Code has been amended specifically in relation to crypto-assets. Therefore, one should not act as if there were a specially regulated sanction specifically for crypto-assets. The application is governed by the provisions on general asset declarations and false declarations.

Can a Tax Return Serve as Evidence in an Enforcement File?

If the debtor’s tax return shows gains from crypto-assets, the buying and selling of crypto-assets, or income arising from such activities, these records may be used as evidence in the enforcement proceedings. However, a tax return does not, of its own accord, conclusively prove three matters:

• The amount of the cryptocurrency balance held on the date of the return,
• The debtor’s control over the wallet at the time of enforcement proceedings,
• That the declared gains are still part of the debtor’s assets.

A tax record may serve as evidence that the debtor has engaged in cryptocurrency activities in the past or has derived income from such activities. It should be assessed in conjunction with bank statements, exchange records and blockchain transaction histories.

Furthermore, the type of transaction and the nature of the activity are significant in terms of the taxation of crypto gains. The mere fact that a declaration has been made does not imply that all crypto assets automatically constitute a seizable balance.

Identification via Exchanges

With regard to whether the enforcement office can carry out enquiries on exchanges, two separate issues must be distinguished:

• Whether the enforcement office may conduct an automatic, unrestricted query covering all exchanges on its own initiative,
• Sending a seizure warrant or a notice under Article 89 of the Enforcement and Bankruptcy Code to a specific platform regarding a specific debtor’s account.

The second method is legally more concrete and practicable. If there is evidence that the debtor holds an account with a specific Turkish crypto-asset service provider, a writ may be requested to be sent to the platform, specifying the debtor’s identity details, user information and the scope of the attachment.

The platform may be requested to provide the account balance, Turkish lira balance, types of crypto-assets, transaction history, withdrawal addresses and custody records. However, it cannot be said that there is a general registry mechanism enabling the enforcement office to carry out automatic queries across all domestic and foreign exchanges.

The right in the platform account may, in the specific case, be assessed as a claim or other right to demand the withdrawal of crypto assets or funds from the platform by the debtor. The platform’s obligation to respond is assessed based on whether the document sent is a notice under Article 89 of the Enforcement and Bankruptcy Code or a writ of attachment; whether it was duly served; and whether its scope is clearly defined.

Frequently Asked Questions

Is the debtor obliged to hand over their private key?

Under current legislation, there is no provision specific to crypto-assets that compels the debtor to hand over their private key or seed phrase directly to the enforcement office. Therefore, as things stand, there is no general or direct obligation to provide the private key in plain text.

However, this does not mean that the debtor can conceal their assets. The debtor may be obliged to disclose the cryptocurrency assets under their control in their declaration of assets. Furthermore, if they have been issued a specific order regarding transfer, handover or safekeeping, acting contrary to this order may give rise to separate legal and criminal issues.

Submitting the private key in plain text to the court or the enforcement file is also inadvisable from a security perspective. Disclosing the key could enable individuals with access to the file to exercise actual control over the assets. For this reason, rather than technical handover, a secure storage or controlled transfer procedure should be considered.

What happens to a debtor who holds a cold wallet without declaring it?

The mere physical presence of a cold wallet does not mean that the crypto assets within it are automatically identified. If the PIN, seed phrase or addresses associated with the device are unknown, the enforcement officer can only see the device itself; the balance on the blockchain and the debtor’s actual control must be proven separately.

If the debtor makes a declaration as if they possessed no assets whatsoever, despite knowing that crypto assets are held on the device or in the relevant wallet, and this is verified through bank records, exchange transactions, electronic data or a technical examination, an allegation of a false declaration may arise under Article 337 of the Enforcement and Bankruptcy Code, an allegation of a false declaration may arise.

Conversely, the mere presence of a hardware wallet at home does not necessarily prove that the device contains crypto assets belonging to the debtor. A realistic approach would be to seize the device, carry out a technical examination of the wallet and address links, compare this with the debtor’s declaration of assets, and, if concrete evidence is found, proceed with a complaint.

Under Article 74 of the Enforcement and Bankruptcy Code (İİK), the debtor is obliged to declare any property, receivables and rights held by them or by third parties that are sufficient to cover the debt. The classification of cryptocurrency assets as movable property, receivables or intangible assets does not remove this obligation.

The exemptions for essential household goods and professional tools set out in Article 82 of the Enforcement and Bankruptcy Code do not, as a rule, apply to crypto-assets held for investment or savings purposes. A distinction must be made between the hardware wallet itself and the digital assets to which the device provides access.

The current text of Article 337 of the Enforcement and Bankruptcy Code provides for a prison sentence of between three months and one year for making a false declaration of assets; it is incorrect to automatically characterise this as a custodial sentence. The existence of a separate asset declaration sanction specific to crypto-assets after 2024 cannot be verified by the legislation in the current database.

In the specific case in question, the most accurate method of investigation is to compare the debtor’s asset declaration, bank transactions, known exchange records, tax documents and blockchain data collectively; one should not draw definitive conclusions based solely on the failure to hand over a private key or the existence of a hardware wallet.