Is it Safe to File a California Chapter 7 Bankruptcy Holding Unvested Stock Options?

Posted by on Mar 25, 2013 in Bankruptcy Exemptions | 10 comments

When a debtor obtains property after the filing which is on account of both prepetition and postpetition services, the property is divided between the debtor and the estate in the same ratio as the services. In re Jess, 215 B.R. 618 (9th Cir.BAP 1997).  So what does that mean?  Well if your stock options are dependent on your personal services, you had better pay attention.   That’s because courts in California will generally divide a pro rated share of your stock options between pre-filing and post-filing interests.

Say you have 20,000 shares of Acme Stock which was awarded on January 1, 2010.   It vests on January 1, 2014.   If you filed BK on January 1, 2012, about 50% of the debtor’s interests in the stocks vested prior to filing and a remaining 50% interest will vest after the BK filing.  What that means is whatever vested prior to filing is potentially property of the BK estate, while whatever is postpetition is property of the Debtor.   Yes, even though the stocks aren’t fully vested until 2014, the bankruptcy estate may get half of the value of those stocks.

What if the stocks aren’t dependent on one’s services?   What is there is a strike price?  What if the stocks are assignable?  Well those are all things a debtor better figure out PRIOR to filing the BK.

Be sure to consult a thoughtful bankruptcy attorney when filing a bankruptcy case where you hold assets.  Make sure to do your due diligence and run through all the contingent and noncontingent assets that may be relevant to your case.



10 Responses to “Is it Safe to File a California Chapter 7 Bankruptcy Holding Unvested Stock Options?”

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