Bitcoin Loans Are Still Loans in Kentucky
BTCJam is the peer-to-peer lending platform where, when things are working properly, those in need of extra capital can get funded by those with Bitcoin to spare, and those with Bitcoin to invest can earn a healthy return.
When things are working properly, which needs to be stressed. Because although the platform has methods of verifying people’s identities and their income, it’s very easy for people to walk away from their debts there. Often, when they do so, it is without consequence.
Until now. Perhaps the first known case has been settled in a Kentucky courtroom. A man Breathitt County, Kentucky, by the name of Dennis Kerley, borrowed a significant sum of bitcoins, about 11.95, in December 2013, the absolute worst time to do such a thing. What was he borrowing for? The miners amongst us have already guessed it: mining equipment. By May, the value of the initial loan had dropped nearly $5000, but Kerley was still on the hook for the loan.
BTCJam has its own arbitration process. This writer currently has a debtor going through such a process, but is not hopeful of receiving his money anytime soon.
It appears that the entirety of the loan was funded by one man, a Daniel Kaminski de Souza of Brazil, and through BTCJam’s internal process he was awarded nearly 65 BTC in early 2014. As stated earlier, BTCJam does not have a lot in the way of recourse for bad borrowers. They can blacklist them from the platform and things of that nature, but they can’t actually force the borrower to pay. Not the way the government can.
So de Souza, a citizen of Brazil, did what Kerley probably did not expect, and contracted Kevin Palley, a lawyer in Kentucky. In March, Palley filed suit against Kerley. Earlier this month, he reached an agreement with the court in Breathitt County, which ruled that despite the plummeting value of the bitcoins loaned to Kerley, and despite the apparently maddening inability of ever making that much money with the equipment he purchased, Kerley still needs to repay de Souza in full.
An Important Precedent?
Palley told Ars Technica that it didn’t mean much, getting a judgement.
Just because I get a judgement, it’s a piece of paper—I can try to put a lien on his house, take his car, but he has various homestead exemptions.
Apparently the exemptions Palley mentioned have to do with a Kentucky resident losing a spouse and places limitations on the debts they can be liable for as a result. But it seems the judgment itself is the most important part of the story.
The court has agreed that when de Souza took a risk and loaned his bitcoins to Kerley, he was not just moving digits around on a public ledger. He was, in fact, taking a risk, making a loan, and the court may have set an important precedent for peer to peer lending sites like BTCJam in the future. Now when similar situations happen, and debtors decide not to pay the money they agree to pay when they gladly take the loans, similar lenders can point to this case in order to give some guidance to the court where they try to get their money back.
In this writer’s personal experience, more than 95% of loans are current. It’s best not to go with usury rates, that is, if someone’s offering something that seems too good to be true, it most likely is. 20% and lower can be reasonable, and there’s nothing wrong with querying on the business plan.
