What will happen to my NFTs in a Washington state bankruptcy case?

So there’s a few questions bound up in the headline question. I’ll walk you through some of the important questions. I’m also going to talk about yield farming and mining.

Is mining crypto an income-generating activity under bankruptcy law? 

Yes. Whether you’re stacking Stacks tokens to earn Bitcoin, earning yield through Balancer, Aavegotchi, or the Qi dao, you’re generating income that will ultimately become a part of your bankruptcy estate. Note: this is true whether the yield is paid prior to (or subsequent to) your bankruptcy filing so long as the underlying NFT itself was acquired prior to filing for bankruptcy protection.

Also Note: the IRS takes a broad view with respect to what is and is not income. 

What’s an NFT?

An NFT is a non-fungible token. In mass culture, NFTs are often thought of as digital pictures of cartoon apes. But NFTs are far more complex and useful than this description would suggest. Whereas 1 BTC = 1 BTC, no two NFTs are exactly alike. There are some blockchains, like Ravencoin, that are NFT-centric (though in Ravencoin, NFTs are called “Unique Assets”), but most NFTs reside on the Ethereum and Polygon blockchains.

Images associated with NFTs are invariably stored not in the NFT itself, but in a distributed file sharing service like Ravencoin IPFS. This is because a typical ERC-721 token would require a cost-prohibitive amount of space to transmit, which would be reflected in astronomical mining fees.

How do I determine the value of my NFTs?

Most NFTs are valueless. However there are plenty of marketplaces like ravenist.com and opensea.io that allow wallet holders to mint an NFT. The cost of minting is a good indication of the NFTs value, though the NFTs traits (think rare versus common traits) can ultimately determine its value in the marketplace.

If you own an NFT that you minted at a marketplace, you’ll need to make a good faith effort to determine its value. At a minimum, though, the minting price is a good heuristic. 

What are the implications of an NFT vault on a Chapter 13 bankruptcy repayment plan?

There are a number of complications here, especially if your yield is paid out in something other than a US dollar-denominated stablecoin like USDT or USDC. The reason is that the value of your crypto and NFT holdings is determined by their USD value as of the filing date. Thus, if your NFT vault pays out in the Balancer token, and the value of Balancer plummets after you file for bankruptcy, then you’re probably out of luck with respect to the lost value. Then there’s the issue of the duration of your NFT vault. If your vault doesn’t unlock for five years, you will be married to its non-exempt value for the entire term of a 60 month bankruptcy repayment plan. Then again, you’d probably have good cause to have your attorney contact the panel trustee to explain things and seek a revised payment plan.