Bankruptcy & Stock Ownership

Bankruptcy can affect your stock ownership in companies.

People file for bankruptcy when their debt is too high, and they cannot pay their bills. Bankruptcy affects property that is owned by the debtor, including stocks.

Exemptions

If you file for bankruptcy, the court can force you to surrender assets to a bankruptcy trustee who will sell them to pay your debts. You may keep an amount of assets up to the amount allowed for exemption. This number varies by state. If any stock that you own qualifies under an exemption, you will get to keep it.

IRA and 401K Accounts

If your stocks are held inside of a retirement account, such as an IRA or 401k, they will be exempt from seizure in a bankruptcy. This is due to a 2005 Supreme Court ruling that retirement accounts were exempt in bankruptcy.

Stocks Not Covered by Exemption

If your stocks are not covered under an exemption or are not part of a retirement account, then the trustee will seize them and sell them, turning the proceeds over to pay creditors.

A Company Files for Bankruptcy

If a company that you own stock in files for bankruptcy, you are not liable for its debt, unless you are a major shareholder or owner and have personally guaranteed the debts of the company. Then, you may be personally liable.

References

• Bankruptcy Lawyer: Will My Stock Ownership Plan Be Protected?
• "USA Today": Supreme Court Rules IRAs Are Exempt

Resources

• The Bankruptcy Site: Bankruptcy Exemptions by State
• U.S. Federal Courts: Bankruptcy Basics