Under the bankruptcy code
, a NJ resident is entitled to use the federal bankruptcy exemptions to retain certain property interests. If your client files Chapter 7 (liquidation bankruptcy), then her credit card and other ordinary debts will be discharged. The options, if part of an ERISA-qualified employer retirement plan, would be exempt from seizure by the bankruptcy trustee
. If the options are simply incentive or nonincentive options, not attached to any retirement plan, then the bankruptcy trustee could assume them as an executory contract
, and then sell them in an auction to pay the creditors.
The trustee cannot sit on the options and execute them at some future date. The trustee must either assume or reject them and liquidate them to satisfy the creditors. So, if the options aren't worth anything yet, that won't stop the trustee from selling them for whatever he/she can get. Your client, could in fact, try to repurchase them,, if she could come up with the money, from, for example, future income.
This raises a secondary issue. Your client appears to have a fairly good job, which probably disqualifies her from a Chapter 7, because her income is too great. If true, then she would hae to settle for a Chapter 13
, in which case, she could hold off on the sale of the options until they had some value. However, if that value becomes so great during the plan payment period that the trustee thinks they could be liquidated to pay all of the creditors more than was originally projected under the plan, then the trustee could ask the bankruptcy court
to permit a modification of the plan, to liquidate the options and pay the creditors. This would clearly not be what your client wants -- but, there's no way to prevent it from occurring, in my opinion.
Re the foreclosure, the creditor can ask the court to lift the automatic stay
and proceed with the foreclosure. In a Chapter 7, that would give your client, at most another 30 days relief. In a Chapter 13, assuming that your client wanted to try to pay the mortgage timely in addition to the other creditors, then the Chapter 13 would stop the foreclosure entirely. But, for an seriously underwater property, this really isn't a great plan, because it's just delaying the inevitable -- unless your client really believes that the real estate market will spring back over the 5 years of the plan payments.
Hope this helps.