How will bankruptcy affect my stock?

When you file for bankruptcy, any stock you own is often considered non-exempt property. This is because stock is not placed in a category of property that is exempt from creditors in your bankruptcy case. Exempt property includes retirement accounts, social security funds, and homesteads. However, the bankruptcy code provides ways that you may be able to protect your stock with your personal property exemption.

When you file for bankruptcy, you are permitted a certain dollar amount of personal property you may exempt. Often times, this personal property exemption is used to protect things such as your jewelry, your furniture, and your electronics. The amount of your personal property exemption depends on whether you claim a homestead exemption and whether you are filing with a spouse.

  • If you file for bankruptcy and are claiming a homestead exemption (meaning you own your home and intend on keeping it), you will have a personal property exemption of $1,000.
  • If you file for bankruptcy and you do not claim a homestead exemption (meaning you rent where you live or your own your home but are surrendering it), you will have a personal property exemption of $5,000. This is sometimes known as a wildcard exemption.
  • If you are filing bankruptcy together with your spouse, these amounts double to $2,000 and $10,000 depending on whether you claim a homestead exemption or not.

If you take your total amount of personal property exemptions and reduce it by the value of stuff you plan on keeping, such as clothing, jewelry, furniture, electronics, etc. and you still have money left over, you may be able to put the rest of your personal property exemption towards protecting your stock account. However, if your stock account is in excess of $10,000, you will not be able to protect much, if any of it, because the stock account far exceeds any exemptions you may have.

If you go over your exemptions or try to keep more stuff than you have exemptions for, the Bankruptcy Court provides for two options – a buy back of your property or a surrender of your property. This is because any amount you go over in your exemptions is actually equity you have in your personal property. The equity is an asset of your bankruptcy estate and can be liquidated by your Bankruptcy to pay back some of your creditors.

  • Buy-back – If you go over your exemptions, you may buy-back the overage in your exemptions by paying the Bankruptcy Trustee the amount you are over in your exemptions. The Bankruptcy Trustee prefers a lump sum payment for the buy-back, but in some instances, they are willing to take payments that should not exceed more than six months.
  • Surrender – If you go over your exemptions and you cannot afford to buy back your equity, you will need to surrender an asset in the amount you are over in your exemptions. If you are over your exemptions by $3,200, you will need to surrender $3,200 worth of personal property. Often times a Bankruptcy Trustee wants the personal property that is most liquid – this usually means cash. That is why stock accounts are ideal – you cash them out and you get money. The Bankruptcy Trustee will not allow you to surrender your old bedroom furniture but keep your stock portfolio.

Here are some examples of personal property exemptions and stock:

Individual debtor, rents his home, has $1,200 in personal property, and $8,000 in stock.

Total Exemption $5,000
Personal Property $1,200
Subtotal $3,800 – remaining in exemptions
Stock $8,000
  Only $3,800 of the stock is protected and $4,200 will either have to be paid by the individual debtor to keep the stock or $4,200 will have to be liquidated from the stock account to pay creditors

Individual debtor, owns her own home, has $1,200 in personal property, and $3,000 in stock.

Total Exemption $1,000
Personal Property $1,200
Subtotal $3,800 – remaining in exemptions
Stock $3,000
  Because the total of the stock account is less than the amount of the remaining exemptions, the individual debtor will be able to exempt and keep the stock.

A couple filing bankruptcy, rents their home, has $2,400 in personal property, and $8,000 in stock.

Total Exemption $10,000
Personal Property $2,400
Subtotal $7,600 – remaining in exemptions
Stock $8,000
  Only $7,600 of the stock is protected and $400 will either have to be paid by the individual debtor to keep the stock or $400 will have to be liquidated from the stock account to pay creditors

A couple filing bankruptcy, own their own home, has $2,400 in personal property, and $12,000 in stock.

Total Exemption $2,000
Personal Property $2,400
Subtotal $0 – remaining in exemptions
Stock $12,000
  None of the stock is protected because there were no remaining exemptions available. Additionally, there is a $400 overage in personal property. There is a total overage of $12,400 which will either have to be paid by the debtors to keep the stock or $12,400 will have to be liquidated from the stock account and another accounts to pay creditors.

Meeting with an experienced bankruptcy attorney can ease your fears and ensure your paperwork is done correctly. There is no substitution for the advice an experienced bankruptcy attorney can provide. Most debtors risk losing their assets if they do not have an understanding in their exemptions and what they can protect. You may find a great value in the fees you pay for an attorney to handle your paperwork correctly and counsel you about your exemptions. Contact Feher Law to set up your consultation at 727-359-0367 or Kfeher@FeherLaw.com

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