What Implication does Bankruptcy have on my ESOP?

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What Implication does Bankruptcy have on my ESOP?

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Employee Stock Ownership Plan (ESOP) is offered to employees in a way of ownership for the company they work in. They are beneficial to the company for tax benefits as well as to the employees too. Apart from being a motivating factor for the employee, they are ideal for retirement too. Since ESOPs are like trust funds, employees don’t have much control over the shares till their retirement age, when the shares are vested. Thus, Dallas based bankruptcy law firm https://recoverylawgroup.com/ lawyers say, ESOPs are quite similar to 401k and therefore treated like retirement plans i.e. they can be exempted in bankruptcy.

ESOP and bankruptcy

All shares in ESOP are kept as a trust fund till the age of retirement or end of the job. When an ESOP is set, a trust is created by the company with yearly contributions in it. through a formula, employees are allotted stock, however, before they can access the stock, it must be vested. ESOPs are treated like any ERISA account, but to be exempted in bankruptcy, it is vital that they pass a two-step test:

  • You need to find out whether ESOP is part of your bankruptcy estate or not. if there is an anti-alienation clause in your ESOP documents due to which you can neither access nor transfer the stock, it qualifies under ERISA. It is therefore excluded from the bankruptcy estate. In some states like Florida, ESOPs are safe if the debtor cannot access the stock even after leaving employment till they reach retirement age.
  • If the debtor’s interest in-stock vests or they can access it on termination of a job, or they can withdraw from it prior to their retirement, then the stock does not qualify under ERISA and is no longer exempted in bankruptcy and becomes part of the bankruptcy estate.

You need to be sure that your ESOPs are protected in bankruptcy as they are often one thing that you can rely on when restarting your life after bankruptcy. Consulting with experienced attorneys at 888-297-6023 can be vital before filing for bankruptcy.