What it is
When a company or individual files for bankruptcy, a legal process begins to determine how the debtor's remaining assets will be distributed among its creditors. Creditors are typically categorized and prioritized (e.g., secured, unsecured, administrative), which dictates the order and percentage of repayment. The recovery process involves submitting claims, participating in court proceedings, and potentially voting on reorganization plans, all under the supervision of a bankruptcy court.
In crypto bankruptcies, such as those involving FTX or Celsius, retail investors who deposited funds often become unsecured creditors. The recovery process is complicated by the commingling of customer assets, the volatile nature of crypto, and legal debates over asset ownership (e.g., whether crypto held by an exchange is a customer's property or part of the exchange's estate). News coverage often details proposed recovery percentages, distribution timelines, and the legal battles between different creditor groups.
Why it matters
As a retail investor, understanding creditor recovery is crucial if a crypto platform you use becomes insolvent; it directly impacts your chances of getting your funds back.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice