Cheerio

Will my vested stocks/ESPP stock value be considered as income in a bankruptcy?

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48 minutes ago, Cheerio said:

I am filing bankruptcy in a few months. Will my vested stocks/ESPP stock value be considered as income?

If inside qualified retirement account, most likely exempt.

Making maximum contributions to 401k effectively transforms non-exempt income into exempt asset.

Reducing or eliminating tax exemptions / pre-paying taxes can also be helpful in limiting losses in bankruptcy.

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Since they are vested and you can convert them to cash, they are considered an asset of the bankruptcy estate and if you cannot protect them through an exemption, the trustee can take the stock, liquidate it, and use the funds to pay the creditors (minus the trustees share of the assets).

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Assuming the option to buy doesn't kick in for a few years, then two questions would be: Whether a third party could exercise the option today (doubtful if you don't have the right to exercise the option today);  whether the trustee would want to bother holding on to the option for a long time.

Again, if the option is somehow inside of a qualified retirement plan, then it should be exempt by law.

 

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OK, first off let's change the terms here. The stock is not income, it is an asset. It might have been paid to you you in lieu of money but it is still an asset in the same way that money, once paid to you, is an asset.

When you declare BK, all of your assets become the assets of the BK trust and is handled by the BK Trustee. Certain assets can be declared as exempt from the trust due to law and revert back to you once the BK case is done. This includes ERSIA assets (401k, 403b, etc), furniture, clothing, a cheap automobile, and any other exemption allowed by law. The rest of the assets is at the discretion of the BK trustee. They can decide to take or liquify the asset or they can abandon it. If the trustee abandons the asset, then it reverts back to you after the BK is done. Also, the trustee gets a set amount for no asset cases but can get more than that if assets are found to pay the creditors so there is incentive for the trustee to take and liquify as much as possible for the creditors. The trustee therefore is not working in your best interest but in the interest of the creditor.

Now in this case, the issue with the stock is if it is restricted or not and how long. If the stock is not restricted or is restricted for a short period of time (usually 6 months to a year), the trustee will probably take it as it is an easy asset to liquify. If over a year, does the trustee want to keep the case open that long and risk a possible BK of the company that issued the stock making it worthless (in other words, a ton of work for possibly nothing). Some trustees might do it and others will not.

So as a previous poster said, if the stock is not restricted or will soon not be restricted, consider selling it, living off money the stock brings in, and put that money into your 401k where that has extra protection from the exemptions. This is unless you have an exemption category you can put the stock into.

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Also, if the stock pays out a dividend, that would be considered income to you for purposes of determining your eligibility for Chapter 7 and while in BK, the dividend is income of the BK estate which creates all sorts of tax nightmares. Another reason to get rid of it if you can before filing BK.

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Basically, unless the stock options are protected inside of a qualified plan, they are probably at risk.

If the options can be exercised now, the cash could variously be protected inside a 401k, IRA, or health savings plan; used to pre-pay student loans, insurance, generally any loan not dischargeable in bankruptcy, home mortgage especially in homestead states, taxes. 

But if the options can't be exercised by you for many years, then probably they can't be by a third party either, and possibly they would be left alone by the BK trustee. Still, it might be useful to try protecting them by using them as collateral for a loan (equity stripping), or otherwise selling them/transferring title. There are many possibilities.

Of course, it is possible that attempts to protect the asset with BK looming could raise a red flag for fraudulent transfer, but you are still entitled to try, and the term does not refer to criminal fraud.

 

 

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Again, it is dependent on what exemptions are available. When I did BK in 2005 for example, the federal exemption allowed for a wildcard exemption for those who did not own a house. I was able to protect a ton of assets under that exemption that normally would not be protected (such as a couple of shares of stock from a employer stock program). So I would look first to see if such an exemption is available.

After that, the next question would be, are the stock options restricted and for how long? That would determine if the trustee wants to deal with them or not. If they are not restricted, then it might be a good idea to cash them out and get the funds into a protected category. If they are restricted for longer than a year, then odds are, the trustee will not want them (but again, that depends on the trustee). If restricted for less than a year, consider holding off the BK if you can until the become unrestricted and you can convert into a protected asset.

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That shouldn’t be considered as income, in my opinion. You don’t work there or something. It’s just something that you own. And that should be only yours and you don’t need to show it or give explanations for it. That’s the deal with stock markets, like Forex. When you use the Best Forex Trading Platforms, then you don’t need to think about safety. My point is that these platforms are safe (well, most of them) and you needn’t worry about what’s going to happen to them. You just do your trading and don’t think about anything else. It’s better to concentrate on making profits from Forex. Or any stock market.

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9 hours ago, cowboyman said:

That shouldn’t be considered as income, in my opinion. You don’t work there or something. It’s just something that you own. And that should be only yours and you don’t need to show it or give explanations for it. That’s the deal with stock markets, like Forex. When you use the Best Forex Trading Platforms, then you don’t need to think about safety. My point is that these platforms are safe (well, most of them) and you needn’t worry about what’s going to happen to them. You just do your trading and don’t think about anything else. It’s better to concentrate on making profits from Forex. Or any stock market.

I don't know about Canada but in the USA, if you do not report income and/or assets to the bankruptcy trustee, you can be criminally charged with fraud.

Stocks (or currencies such as FOREX) are considered assets and are available to the trustee to be liquidated to pay the creditors in a chapter 7 unless the law allows for an exemption for the asset. The dividends from stocks (or earnings from other assets) are considered income and can be used to pay creditors in a chapter 13. Income is money that you receive, whether you work for it or not.

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I know that I am super late for this, how did it go? Bankruptcy is not a nice thing, but there are people who do it just to avoid having problems with authorities. The funniest one was when 50 cent filed for bankruptcy, and now he is paying a million dollar prize for some MMA tournament. Anyway, forex is dangerous if you are not knowledgeable, and I am not. That is why I subscribed to forexkings.com, those guys do a great job with informing you on what to invest in. Their success rate is really high to, all in all, it's worth it. It's a good way to avoid bankruptcy.

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