Can You Buy Stock During Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is used by individuals under extreme financial burdens to pay off their debts. Because Chapter 7 bankruptcy liquidates your assets to pay off those debts, buying stock during this time might be difficult.

When you file for bankruptcy, you will need to give a full accounting of your finances and assets, which will be placed under the authority of the bankruptcy court. If you have money to spend in your bank account, the court will likely not let you use it to buy stocks if you still have debts to satisfy. However, you might have justifiable reasons for doing so, which our attorneys can help argue to the court. We can also explore options to help keep some of the stocks you already own before filing for Chapter 7 bankruptcy.

For a free case consultation with our bankruptcy lawyers, contact Young, Marr, Mallis & Deane at (215) 701-6519.

Can I Invest in Stocks After Filing for Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy can help individuals facing significant financial challenges get out from under the pressure of their debts and move on with their lives. While Chapter 7 bankruptcy is helpful, many people do not understand how filing for it will impact their assets, especially if they want to buy stocks. This has become a much more common issue over the years for those filing for bankruptcy, as online apps give them easier access to trade on various stock markets. Unfortunately, though, Chapter 7 bankruptcy can impact any property you come into possession of after filing for it.

Chapter 7 bankruptcy is referred to as “liquidation” bankruptcy because the court sells, or “liquidates,” some of your assets to satisfy your debts. When you file for Chapter 7 bankruptcy, the court will appoint a trustee to oversee the case. One of the first steps the trustee takes after being appointed is to assess the assets you currently possess and separate them into exempt and non-exempt property. Exempt property typically includes your home, retirement accounts, and Social Security benefits and cannot be liquidated to satisfy your debts.

Non-exempt property, on the other hand, is everything else you own, including cars, vacation homes, personal property, and stocks. These assets are fair game to be liquidated in your case.

If you acquire any assets after starting your bankruptcy claim, you are legally required to report it to the assigned trustee. For instance, if you receive an inheritance, you must report it. Most states give trustees several years to discover hidden assets and claim them, known as the “lookback” period.

Stocks are different, though. Buying stocks means you have the money to make investments. If you have the money to invest, the court will want that money put towards your bankruptcy debt, not gambling in the stock market, so it will likely not let you invest. Our bankruptcy attorneys can review your case and determine what arguments we can make to the court. We can also explore options with you that can help protect stocks you already own.

How Can I Protect Stocks that I Already Owned Before Filing for Chapter 7 Bankruptcy?

As part of the Chapter 7 bankruptcy process, filers might be able to claim various exemptions to keep possession of some of their non-exempt personal property, including stocks. However, which exemptions will be available to you and how much they will protect you will depend on the state in which you are filing for bankruptcy. The following will help you understand how you can exempt personal property like your stocks during bankruptcy and what alternatives you have if your state does not exempt investments:

State Personal Property Bankruptcy Exemptions

Some states allow you to protect all of your stocks from being acquired during bankruptcy. For example, New Jersey allows those filing for Chapter 7 bankruptcy to keep 100% of their stocks and cannot be seized during any civil process in the state courts, according to N.J.S.A. § 2A:17-19.

Maryland’s “wildcard” personal property exemption, on the other hand, only allows filers to protect up to $5,000 in personal property, according to Md. Code, Cts. & Jud. Proc. Art., § 11-504(f)(1)(i)(1). However, Maryland permits another $6,000 in personal property to also be claimed as exempt under a general wildcard exemption, as per § 11-504(b)(6).

Not every state has an exemption for personal property or very good ones, so you will want to review your case with our team before deciding which exemptions to apply for. Pennsylvania bars individuals from claiming any exemptions for stocks during bankruptcy under 42 Pa.C.S. § 8124. In fact, Chapter 7 claimants can only protect up to $300 of personal property under Pennsylvania’s wildcard exemption, according to 42 Pa.C.S. § 8123(a). Thus, you will likely not have any coverage left over to protect your stocks after protecting other assets.

Federal Personal Property Bankruptcy Exemptions

If you are filing Chapter 7 bankruptcy in a state with inadequate or nonexistent exemptions for your stocks, we can help determine if the federal exemptions would offer more relief than your state’s. When federal exemptions are available, a debtor can claim up to $15,000 in property to be exempt from bankruptcy proceedings, according to 11 U.S.C. § 522(d)(1). However, most of the money in that exemption is reserved for real property, like your home. The federal wildcard exemption under 11 U.S.C. § 522(d)(5) does allow debtors to claim $800 in any personal property, plus up to $7,500 of whatever amount is left over from the $15,000 exemption, potentially protecting up to $8,300 in stocks.

Can I Sell Stocks Before Filing for Chapter 7 Bankruptcy?

If you are instead considering selling some of your stocks before filing for Chapter 7 bankruptcy rather than buying them, you will want to be careful. The court looks carefully at any financial transactions that occur prior to filing for bankruptcy and might consider selling stocks as attempting to hide assets for it and your creditors.

Of course, selling your stocks might have been the only way for you to deal with the financial burdens that led you to file for bankruptcy in the first place. You might also sell your stocks before filing for bankruptcy to cover basic living expenses, like food, rent, and utilities. This is fine as long as your expenses can be justified to the court. If the stocks are sold to family or friends or sold for less than they are worth, the court could determine you were trying to hide them and dismiss your case. Worse, you will likely be charged with a crime for defrauding the court.

Our Chapter 7 Bankruptcy Attorneys Can Help You with Your Case Today

Our Philadelphia bankruptcy attorneys at Young, Marr, Mallis & Deane are ready to provide you with a free case review when you call (215) 701-6519.