My wife and I had about 10% of our life savings in BlockFi. This is a pretty big blow for us, especially while gearing up to start a family. It's easily in the top 5 worst things to happen to me in my life. Is there any hope of individual creditors getting any of their money back? I'm unfamiliar with how bankruptcy works.
I'm not a specialist in the area, but here's my explanation as a financial professional.
When a company goes bankrupt, it's assets and liabilities are summarized by an administrator who is hired. Typically a well known firm with lots of experience, and they will do things like find out where the assets are, possibly liquidating some of them. You may have seen that FTX has a new CEO. They are in fact empowered to run the company.
There's then something called the capital structure, basically an order in which liabilities are paid to creditors.
First of all, you want the admin to want to bother doing the work. So they come first in the queue of people.
There's then the tax man (actually, which comes first, admin or tax? Might depend on where you are).
Then there are secured creditors. For instance you might have a factory with equipment, and some loan was made against the equipment. Or you have property and a mortgage against it.
Then there are unsecured creditors, like employees owed final payments.
Depending on how complicated the firm is, the whole credit part of the capital can get super complicated, basically tranches where each junior tranche is only paid if senior tranches are fully paid.
It's unusual, but if somehow the assets exceed the liabilities, the equity holders will get the rest. Don't count on that, because it's unusual for such a firm to go bankrupt.
Now with high profile bankruptcies there are sometimes investors who will buy your position in the queue. If you get an offer the gamble is basically that it's worth your while to get out immediately and let the bankruptcy speculator deal with all the BS as well as the waiting time to get the money eventually. A friend of mine got offered this from Lehman, turned it down, got paid pretty reasonably, eventually.