Stock Options Treatment (Asset or Future Earnings)

[RickRinaldo]

Does anyone have experience with how unvested stock options are treated in a Chapter 7 case. Mine vest (25%) at the end of year year. Are they considered future earnings (since you need to be employed on the vesting date in the future) or assets at the time of filing (although they are worthless at that time because they are not vested)?

Thanks for your guidance.

[jst4f]

Our attorney told us that since they had no value at the time of filing and that there was no certainty of them ever having any value, we were not to include them.

[RickRinaldo]

Thank you for your reply some questions:

Did you take that advice and file that way - if so,
was it questioned by the trustee and did you bring it up when questioned about disclosing all your assets
have you made it through the whole process and been discharged

[despritfreya]

Stock options ARE an asset. They are not "future earnings" as all they are is a right to buy stock in the company after a date certain and for a certain price. Whether or not they have any value depends upon when they "vest", what the option price is, what the likelihood will be that one will continue to work for the company long enough to exercise the option and what the market is at the time the options can be exercised.

Options are listed on Schedule B (Item 13 or 19), typically with an "unknown" value unless currently vested. Will a Trustee take them? That depends upon the Trustee and whether or not some exemption covers them. Typically, if the option price is too high based upon today's market and/or the timing of vesting, the options will be abandoned. I have had cases where the Trustee thought he could "sell" the options - but eventually abandoned them.

In my book, you err on the side of caution and list whatever options you have with a description of when they vest and the option price.

Des.

[RickRinaldo]

Des,

Thanks for your reply

[despritfreya]

Rick,

Even though I've been a member of the forum for quite some time, I am not sure how to enter a response to your post so I am doing it here.

1. Yes, I am an attny.
2. From what you said you need to disclose, disclose, disclose. The Trustee is going to know or suspect that you have options anyway as I am sure you work for a major employer who has had many employees file bk. In addition, there is probably a reference to the purchase of such options on your paycheck stubs, which you have to file with the Court and supply to the Trustee.
3. If the options have value and you do not want to lose them you do not file a Chapter 7 - although, in a Chapter 13, they are considered an asset and, when exercised, you may have to turnover the proceeds.

You really need to sit down with a qualified attny to figure out what you should (or should not) be doing as it relates to this asset. Do this before you file a Chapter 7. Bring with you as much information on the asset as you can.

Des.

[RickRinaldo]

Thanks Des.

You are correct on all the above points. And Yes, I have consulted an attorney (that specializes in bankruptcy) and gotten good advice and direction on everything except the options. For some reason, he was not knowledgeable on whether they are an asset or future earnings. I have ruled out Chapter 13 due to my future earnings. I am only in this situation because of a temporary divorce order (i think the judge was mathematically challenged and just made a mistake) that makes me underwater on monthly income vs. expenses.

[despritfreya]

If the attny you have spoken with is not familiar with stock options there is nothing wrong with you consulting with another. Since consultations are usually free, get as many as you can or feel comfortable with. You may go back to the current attny and, such is fine. Getting additional opinions is in your best interest and that is what the process is all about.

Des.

[AngelinaCat]

If the attny you have spoken with is not familiar with stock options there is nothing wrong with you consulting with another. Since consultations are usually free, get as many as you can or feel comfortable with. You may go back to the current attny and, such is fine. Getting additional opinions is in your best interest and that is what the process is all about.

Des.

Hi Rick: In fact, it is the standard recommendation on this forum, to get free consultations with at least three-five attorneys before selecting one. One may have knowledge and expertise in a field that another does not. Also, there may be a 'personality conflict' between you and a potential attorney. Keep all of these factors in mind as you interview these people.

Good luck to you!

[ValleYum]

There is a nice wildcard available that may be used to exempt some (maybe all - price dependent) of the stock options mentioned. OP would need to use the federal bankruptcy exemption set here in Washington state and not be trying to protect (much) home equity. Make sure to ask your attorney!

[AngelinaCat]

I do remember that we were asked at our 341 if we owned any stocks or bonds outside of our Retirement instruments. We didn't.

[ValleYum]

I do remember that we were asked at our 341 if we owned any stocks or bonds outside of our Retirement instruments. We didn't.

We were asked the same. LOL at the time of our 341 we didn't even have a 401k. Thankfully we are able to make nice-sized contributions now. I even have my own IRA now, too! Woot!