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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39027
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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BANKRUPTCY-CLIENT HAS TWO DOCKETED JUDGEMENTS ON CREDIT CARDS

Resolved Question:

BANKRUPTCY-CLIENT HAS TWO DOCKETED JUDGEMENTS ON CREDIT CARDS TOTALING 22K. ONE (amex) WAS SERVED ON HER BANK ACCOUNT TODAY WHICH HAD ONLY 1400.00 IN IT AND IS NOW FROZEN.
CLIENT HAS OTHER CREDIT DEBT TOTALING 75K NOT IN JUDGEMENT YET. IS DIVORCED BUT FORMER SPOUSE ALREADY RELEASED IN BANKRUPTCY AND SOME OF THE DEBTS WERE IN HIS NAME (OR HERS) BUT WITH HER SS#.
SHE IS EMPLOYED BY A PRIVATE COMPANY IN THE CHEMICAL SENSING SPACE AND HAS OPTIONS ON 88,000 SHARES WHICH HAVE REAL CHANCE TO BE WORTH ALOT WITHIN 1-5 YEARS AS CONTRACTS EXIST WITH BOTH THE MILITARY AND INDUSTRY. OPTIONS ARE VESTED BUT CAN ONLY BE EXERCISED IF A "LIQUIDITY EVENT" TAKES PLACE SUCH AS AN IPO, MERGER, BUYOUT ETC. WHICH IS ALSO A REAL POSSIBILITY.
CLIENT IS LIVING IN FORMER MARITAL HOME (SPOUSE WAS EJECTED LEGALLY)STILL IN JOINT NAME-EX SPOUSE HAS NO ASSETS AND IS CLINICALLY DISABGLED.NO PAYMENTS HAVE BEEN MADE SINCE 11/08 AND PROPERTY IS SERIOUSLY UNDER WATER. ACTIVE FORECLOSURE IS IN PROCESS BUT NJ ALLOWS 390 DAYS BEFORE EXPULSION WHICH WILL BE LATER THIS YEAR.
IF SHE SEEKS RELIEF UNDER CHAPTER 7-WILL SHE GET ANY RELIEF FROM THE JUDGEMENTS, WHAT WILL SHE REALIZE FROM THE EXISTING NONDOCKETED LIENS AND DOES SHE HAVE TO RELINQUISH HER STOCK OPTIONS COMPLETELY IF SHE FILES FOR BANKRUPTCY AND WILL SUCH A FILING START A NEW PERIOD OF NONEXECUTION ON THE FORECLOSURE?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 6 years ago.
Hello,

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.

Customer: replied 6 years ago.

Dear Socrates:

Great response in timing and if you work with me a little more I will add a bonus too. Q: Her income is quite modest actually. Only 52,000.00 per year as an office admin. She actually took a cut in pay during harder times to help the company through the economic mess of 06-09 and a VC who went broke during that time. As an incentive to be a team player they granted her these stock options 88,000 shares which are vested but must have that liquidity event to become worth something and that is not assured at least yet. I also hold 126,000 shares (I am a cpa who raised over 7million for this company and am facing very similar (although much larger issues than her) and would do anything to keep my stock. My house too is under water and my only assets left are that stock and some Iraqi dinars which I am fairly confident are going to appreciate 20x very soon. In the case of the docketed judgements-can she still make a deal with amex or are they exempt from bankruptcy since they are already judgements??

The options she has are not part of a sponsored erisa plan i dont think but will find out. The item about the trustee not being able to hold them is quite interesting however.

Expert:  socrateaser replied 6 years ago.
Q: Her income is quite modest actually. Only 52,000.00 per year as an office admin. She actually took a cut in pay during harder times to help the company through the economic mess of 06-09 and a VC who went broke during that time. As an incentive to be a team player they granted her these stock options 88,000 shares which are vested but must have that liquidity event to become worth something and that is not assured at least yet. I also hold 126,000 shares (I am a cpa who raised over 7million for this company and am facing very similar (although much larger issues than her) and would do anything to keep my stock. My house too is under water and my only assets left are that stock and some Iraqi dinars which I am fairly confident are going to appreciate 20x very soon. In the case of the docketed judgements-can she still make a deal with amex or are they exempt from bankruptcy since they are already judgements??

A: The maxium income for a Chapter 7 in NJ is $58,107. You or your client may want to take the "means test," and determine whether or not she qualifies for a Chapter 7. See this link. Even if she qualifies, she can still file a Chapter 13, instead.

Re hanging onto the stock and negotiating a settlement with creditors, vis-a-vis filing bankruptcy, sometimes if a creditor knows that a bankruptcy is imminent, unless a settlement can be reached, may cause a settment to occur. But, most sophisticated creditors will ask for financials to verify that the debtor has no assets that can be reached by the creditor. And, if the creditor doesn't get sufficient disclosure, then it won't settle, and the debtor will be stuck with either filing bankruptcy or not.

Based upon your stated facts, my thought is that the Chapter 13 could make it possible to stall and wait to see whether or not the options become valuable enough to make it worthwhile to pay off the debts and dismiss the bankruptcy -- or, complete the plan as originally projected -- and, if successful, then you would keep the options.

I don't see any clear path to a solution here. I wish I did. Each option has an associated risk and benefit.

Note: one thing that you cannot do is fail to disclose the options, and then file for bankruptcy. That could lead to criminal bankruptcy fraud charges.

Hope this helps.

Customer: replied 6 years ago.

Socrates-I am absolutely going to give you a bonus-BUT I have never been able to print out these page any way I try and I need to have my client read your comments. If you can help me print-great-if not I will confirm tomorrow and settle at once. Thanks again for your incredibly fast and timely help

Expert:  socrateaser replied 6 years ago.
You can't print the page until you click Accept.

I have no control over this issue. It's entirely under the control of justanswer.com.

Hope this helps.

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