Brazilian court permits cryptocurrency seizure for debt recovery

The Brazilian Superior Court of Justice has ruled that cryptocurrencies can be seized to settle debts, marking a significant step in recognising digital assets as legitimate financial instruments. 

The unanimous decision by the court’s Third Panel allows judges to instruct cryptocurrency brokers to freeze or transfer assets from debtors who have defaulted on payments.

Under existing rules, Brazilian judges already have the authority to freeze bank accounts and withdraw funds without notifying the debtor. 

This new ruling extends those powers to include crypto assets, treating them similarly to traditional financial holdings. 

“Although they are not legal tender, crypto assets can be used as a form of payment and as a store of value,” a translated memo from the court stated.

Minister Ricardo Villas Bôas Cueva, one of the panel members, acknowledged that while Brazil lacks comprehensive regulations for cryptocurrencies, certain legislative proposals have defined them as “a digital representation of value.” 

This classification provides a legal foundation for their use in debt collection cases.

Despite regulatory uncertainty, Brazil remains a major hub for cryptocurrency adoption. 

According to a Chainalysis report, Brazil ranks second in Latin America for crypto value received, trailing only Argentina. 

Earlier this year, Binance secured approval to operate in Brazil after acquiring a São Paulo-based investment firm, signaling growing institutional interest in the market.

However, regulatory developments in Brazil have been mixed. 

In December 2023, the central bank proposed restrictions on stablecoin transactions in self-custodial wallets, raising concerns among industry participants about enforcement challenges.

The court’s decision is expected to have far-reaching implications for creditors and debtors alike.

By including cryptocurrencies in legal tools for debt recovery, Brazil has taken a step toward integrating digital assets into its financial system.