Chapter 13 Process: Are you forced to liquidate stocks?

[jn1520]

My wife and I are considering filing Chapter 13, but would like to know how this affects our stocks. I'm a newbie to the forum and have done some reading, but haven't found this answer in particular.

Without going into too many details, our income is very good (approx. $100K annually) and we're still afloat, but realize the CC debt is becoming insurmountable (spelling?). Currently, I own stocks that value at approx. $15K but can reasonably expect this will grow to approx. $50 - $100K by December. This amount would definitely pay off most, if not all the CC debt and then some.

The problem is, we're expecting our first child in August and will lose my wife's income after September. Classic "rock and hardplace" situation. I'd love to wait for the stocks to mature and pay off the debt. However, I'm wondering if it's smarter to go into Chapter 13, knowing that I won't be able to keep paying the bills soon.

In general, are you forced to liquidate all assets, including stocks during this process? Also, do you have to wait until you're behind before you can file?

Thanks ahead of time for any feedback! I'd be happy to provide more specifics with regards to the finances if requested.

[justbroke]

Unless you can exempt that stock (and other assets) using exemptions for your State... they are property of the Estate and the Trustee will seize them and sell them.

[jn1520]

Thanks for your quick reply...I really appreciate the feedback. I'll continue to read more about this process so that I really understand what options we're facing.

[woeisme]

Currently, I own stocks that value at approx. $15K but can reasonably expect this will grow to approx. $50 - $100K by December. This amount would definitely pay off most, if not all the CC debt and then some.

Ok, I know it's not answering your question, but sure would love to know what stocks you have that plan to appreciate by 300-700% in 6 months!

It's also possible that you may be able to keep them if they aren't exempt if you can pay the trustee what they are worth currently to keep them. I've heard of people doing this, including extra payments to the trustee to cover things like tax refunds that they are anticipating, so they pay extra every month to essentially allow them to "buy back" their refund. Never heard of anyone doing it with stocks, you'll have to ask a lawyer on that if it is possible.

No, you do not have to be "behind" on anything in order to file Ch 13. Many people go into Ch 13 having perfect credit/payment histories, just too much debt and life events (like your upcoming child and job loss).

[woeisme]

hmm... now that I'm thinking more about the stocks, it could be problematic even if you pay the trustee 15K to keep them, because if they really do go up in value shortly after confirming, it would be a "windfall" which the trustee is also entitled to keep, so you might still have to hand over the profits, even though you assumed all the risk of owning the stocks, not the trustee...

[jn1520]

Very interesting and I was afraid of exactly what you're describing. I love the idea of still making good on our debts, but doing so in a more structured (affordable) way via Chapter 13. However, it seems doing so will almost ensure losing out on the stocks in some way.

By the way, I know the returns I speak of sound astonomical, but I was lucky to have landed a few good picks out of some really awful ones. Not to go too far off topic, but I love any chance I can to spread the wealth on one in particular: ACTC (Advanced Cell Technology). Back in fall of '08 they traded at .018 and I started reading about their potential. Unfortunately, I waited until it was .07 to invest. Needless to say, they're now trading at .27 and have a tailwind pushing it to $1.00 and above within months. This will be one of the biggest stem cell plays of the decade.

The more I think about this, the more I think maybe we should try and stick this out...see how the market treats us and re-consider filing if things get really rough. I just keep thinking of my wife and baby daughter, wanting to do what's best for them.

Once again, thank you!

[justbroke]

Actually, the gain realized on an exempt asset, is still exempt. There is caselaw to support that as well. Specifically, look at the largest asset you have, your home. You can exempt it under a homestead at filing, yet realize a large amount of equity should the property appreciate through the life of the plan. (This seems moot for Florida, because are homestead exemption is gratuitous and unlimited!) Once exempt, always exempt... seems to be the rule.

[BnkrptcyLwyr]

Unless you can exempt that stock (and other assets) using exemptions for your State... they are property of the Estate and the Trustee will seize them and sell them.

Sorry, but this is just wrong w.r.t. Ch 13.

The Chapter 13 Trustee does *not* have the authority to reduce unexempt assets to cash like a Chapter 7 Trustee.

The difference in a Chapter 13 is that whatever portion is not exempt, you *must* pay out *at least* that amount in your plan payments to unsecured creditors. Thus, if you do a liquidation analysis, and there would be 20,000 available to unsecured creditors in a Chapter 7, you must pay out no less than 20,000 in Chapter 13. This is the "best interests of the creditors" test ... it basically says that your unsecured creditors can do no worse in a Chapter 13 than they would do in a Chapter 7.

The good thing about it is that the value of the assets is set as of the day of filing.

[justbroke]

Sorry, but this is just wrong w.r.t. Ch 13.

We'll agree to disagree. My statement was incomplete at worst. (And I may still be wrong. )

The difference in a Chapter 13 is that whatever portion is not exempt, you *must* pay out *at least* that amount in your plan payments to unsecured creditors. Thus, if you do a liquidation analysis, and there would be 20,000 available to unsecured creditors in a Chapter 7, you must pay out no less than 20,000 in Chapter 13. This is the "best interests of the creditors" test ... it basically says that your unsecured creditors can do no worse in a Chapter 13 than they would do in a Chapter 7.

And that's what made my statement incomplete. So the question is, if you can't pay that value (based on the liquidation analysis) through the plan, then what do you do (without dismissing or having your case dismissed)? You turn the asset over to the Trustee or is everything just okay from there since you can't afford to pay it?

[BnkrptcyLwyr]

I just noticed something that I kinda glossed over ... you said your wife will be losing her income.

File the Chapter 13 now ... but make sure that you will be able to stay afloat in a Chapter 13 without your wife's income and make the necessary payout. The plain reason, you want the value of the stocks *now* ... and not later.

Also, if the stocks do appreciate in value, then you don't want to convert to a Chapter 7 since the Trustee will be able to take that stock and sell it (and get the non-exempt portion).

And furthermore, why would you *want* to pay off the credit card debt? You may very well need the stock money for your family.

[jn1520]

Thanks for the updates. If I'm understanding correctly, the "current" value of my stocks will factor into my monthly payoff to the trustee due to the stocks being considered an "asset"? Regardless, does this mean any proceeds from the stocks AFTER filing Chap. 13 will be cash on hand for me and my family and not to be seized by the trustee?

[jn1520]

Now that I'm in the consideration phase, I thought I'd share the details. Is there anyway to get a ballpark figure of what I might be facing in Chapter 13? What type of monthly payment can I expect to the creditors?

Current Monthly Income = 7500 (will be 4380 as of October '09)

CC Balances (total) = 71000

-breakdown per month = 1900


Mortgage = 1400/month (1st mortgage = 135K /2nd mortgage (HELOC) = 40K)

Car Payment = 14000 (290/month)

Student Loans = 350/month

Condo Fee = 250/month

Cell = 110/month

Car Ins = 200/month

Electric = 50/month

EZPass = 25/month

Cable = 160/month

Taxes = 75/month

[aa06a47]

I would not file bk with 2 incomes now knowing 1 of them goes away. I really don't think you would get a very workable plan.

Your penny stock investment is actually speculation. There is no guarantee this gamble will pay off. Depends on when the last sucker quits buying it at. Penny stocks are penny stocks because well.....you know. Rarely do penny stocks pay off that big. I pray it does for you. I hope the best for you. Just realize, if the trustee allows you to keep the stock and it goes the other way, then your paying the trustee another 10k you would not have had to.

Now, with that said, if your penny stock does pay off, you will obviously sell it. It will show up on your tax statement as a captiol gain, and the trustee can and probably will take it. (if your trustee request your income tax statements).

Here is my advice. If your just starting to look into the bankruptcy process, you probably won't actually file for 6 months, especially if your not having any problems making the payments now. I would see if the investment pays off, then pay your creditors with the capitol gains and not file bankruptcy. If your wanting to file bk now so you can keep any profits on your spec stock, I don't think that it works that way. Plus, even if it paid you 100k and you managed to keep it all, being in a chapter 13 for 5 years of your life isn't worth it.

[aa06a47]

Very interesting and I was afraid of exactly what you're describing. I love the idea of still making good on our debts, but doing so in a more structured (affordable) way via Chapter 13. However, it seems doing so will almost ensure losing out on the stocks in some way.

By the way, I know the returns I speak of sound astonomical, but I was lucky to have landed a few good picks out of some really awful ones. Not to go too far off topic, but I love any chance I can to spread the wealth on one in particular: ACTC (Advanced Cell Technology). Back in fall of '08 they traded at .018 and I started reading about their potential. Unfortunately, I waited until it was .07 to invest. Needless to say, they're now trading at .27 and have a tailwind pushing it to $1.00 and above within months. This will be one of the biggest stem cell plays of the decade.

The more I think about this, the more I think maybe we should try and stick this out...see how the market treats us and re-consider filing if things get really rough. I just keep thinking of my wife and baby daughter, wanting to do what's best for them.

Once again, thank you!

One more thing....if your tempted to invest in the stock above, read the 10k first. The company lost 12million bucks last quarter, only has sales (income) of about 200k, and a 110m market cap at the current price. It is pure speculation.

[jn1520]

AA - I agree that waiting is the right decision for us. I have plenty of capital, between stocks and other funds to keep us afloat will into December. My hope is that my stocks pan out better than expected. Also, I just want to clarify ACTC is only ONE of my holdings. I didn't want anyone here to get the impression that all my eggs are in one basket.

Respectfully, I also have to disagree strongly on ACTC being purely a speculative play. It's true that most penny stocks are extremely risky, but this company is an exception to the rule for many reasons:

First of all, stem cells are the future of medicine and I firmly believe companies involved will trade much like the dot-coms in the 90s - the one exception being they actually have something tangible to offer. Also, there are Federal NIH Funding guidelines to be released soon, which means money for ACTC and others. Within weeks, they will also be releasing up-to-date financials, thus allowing them to return to the OTCBB, which means greater exposure in the investing community. Add their NDA filing with the FDA this summer and voila, you have $1.00/share. They are as close to a sure-thing as you get and just "market-manipulation" alone will send this over a dollar because the market is NOT rationale right now. It's important to note, this was once an $8 stock and it got crushed over the years because there was a ban on stem cell research, which is now lifted.

I apologize for getting off on that tangent, but wanted to make it crystal clear that I know what I'm investing in.


With regards to Chapter 13, I can't agree with you more. We should wait and see what happens financially and only consider filing as a last resort.

Once again, thank you (and all others) for taking the time to reply. It's greatly appreciated.