Deborah Kovsky-Apap, a partner at Troutman Pepper Locke LLP, was quoted in the July 21, 2025 article by James Nani, “GENIUS Act Bankruptcy Changes Give Holders Top Recovery Priority.”
As detailed in the article, the GENIUS Act represents a significant shift in U.S. bankruptcy law, particularly affecting stablecoin holders. In recent bankruptcy cases, crypto holders have been treated as general unsecured creditors, but this new legislation changes that dynamic by allowing stablecoin holders to be repaid before other creditors even when reserves set aside for them fall short.
Kovsky explained the policy reason behind the new priority scheme. “If you tell holders ‘sorry, if the issuer ends up becoming insolvent, you’re just going to be an unsecured creditor in bankruptcy holding a worthless IOU,’ you’re not going to see widespread adoption of stablecoins.”
The GENIUS Act’s prioritization of payments to stablecoin holders — both from dedicated reserves that are outside the property of the estate and from estate property — raises questions about how stablecoin bankruptcies will be funded. Legal expenses cannot be paid from the reserves, which are not considered property of the estate. “Since no one is going to provide these services for free, I don’t see how it gets done under the current version of the bill, and many issuers would likely be administratively insolvent from day 1,” Kovsky noted.
The legislation, signed into law by President Donald Trump on July 18, is poised to reshape creditor repayment hierarchies and could deter financing for stablecoin issuers filing for Chapter 11. As the crypto industry navigates these changes, the implications of the GENIUS Act will be closely watched by restructuring professionals and stablecoin issuers alike.
