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Can You Buy Shares in Bankruptcy?
– Bankruptcy Proceedings

Bankruptcy Proceedings

The purchase of shares is normal for many people according to broker apps and exchanges. However, it happens that indebted people hold stocks and trade with them. As private bankruptcy or regular bankruptcy approaches, the question arises for many debtors whether they are allowed to continue trading stocks at all and what happens to a possible profit in the insolvency proceedings. This situation becomes especially relevant when considering Chapter 7 bankruptcy, which is a form of bankruptcy with its own set of rules and implications.

The following article examines the questions raised in the light of the phase of bankruptcy proceedings in the narrower sense, keeping the portfolio recovery lawsuit in mind, and the period of conduct of business.

What happens to stocks in bankruptcy proceedings?

Stocks are securities that have an asset. The specific asset a stock has depends on several factors, not least the type of stock. Since the share has an approximately quantifiable market value, it is important for the insolvency administrator as an asset in insolvency proceedings. According to § 35, the bankruptcy estate includes all those assets of the debtor that existed at the time of the opening of insolvency proceedings or that were acquired during the insolvency phase (so-called new acquisitions). You can find out more about this in the article New Acquisitions in Insolvency Proceedings - Important Cases.

This means that shares that are held by the debtor at the time the proceedings are opened can generally be seized. Even shares that are bought by the debtor after the opening of private or regular bankruptcy can be drawn by the insolvency administrator to the bankruptcy estate. Holding and buying shares is fundamentally - apart from a conceivable waste of assets - not prohibited at any point in the proceedings. At most, it is questionable whether you will retain the asset value of the share or a dividend in the insolvency proceedings. As explained above, this is usually not the case. The situation is different in the conduct of business phase (more on this in a moment).

It should also be borne in mind that a profit from one share can still be attached after the end of the insolvency proceedings as part of the supplementary distribution.

Bankruptcy Proceedings

What happens to stocks during the conduct of business period?

In the conduct of business phase, the profit from a share can generally no longer be seized. This applies in any case, if this was not already created in the phase of the insolvency proceedings. Because with the entry into the conduct of business period, § 35 no longer applies, which orders the attachment of the debtor's assets within the legal framework. You can therefore buy and sell shares without this having any fundamental significance for your discharge of residual debt. The exception to this is the case of supplementary distribution.

A special case is the situation in which the debtor derives most of his income from stock trading. In this case, it must be checked to what extent the declaration of assignment issued at the beginning of the bankruptcy proceedings includes the income from stock trading.

What is the final distribution?

The final distribution marks an important point in the bankruptcy process for both the debtor and his bankruptcy creditors. With the final distribution, the insolvency proceedings usually end and the creditors receive (in principle, the last) satisfaction of their registered claims according to a certain distribution procedure. The debtor comes into the conduct of business period and significantly fewer obligations meet him. The debtor comes a good deal closer to the desired discharge of residual debt.

The following guide explains how the final distribution works and what legal consequences the final distribution entails for the debtor and the bankruptcy creditors.

How does the final distribution work?

The final distribution occurs when the bankruptcy estate has been silvered (Section 196). The liquidator this produces a distribution directory - also called closing directory. In the final list, all established claims of the creditors from the insolvency table are listed. If there are late reports or corrections of claims, these will be included in the final list. It is, as it were, the last version of the insolvency table. You can find out until when creditors can still file their claims in the article Creditor does not file a claim - what happens now? The final directory contains the names of the bankruptcy creditors and the amount of their legally established claims.

The liquidated bankruptcy assets are distributed to the insolvency creditors on the basis of the final list.

A closing date will be set by the bankruptcy court beforehand. This is the last meeting of creditors. It is used to make discussions, gives the creditors the last opportunity to raise objections to the final list and to make decisions about unusable objects of the bankruptcy estate (Section 197).

Bankruptcy Proceedings

After the approval of the bankruptcy court - possibly also of the creditors' committee (Section 187 (2) sentence 2) - the final distribution is made by the insolvency administrator. However, if the distribution is made without consent, the distribution will remain in effect. However, a liability of the insolvency administrator according to § 60 comes into consideration.

What does the final distribution mean for the creditors?

With the final distribution, the creditors who participated in the insolvency proceedings by registering their claims in the insolvency table will receive the realizable insolvency assets paid out. This is done by the bankruptcy administrator and is determined by the rank of the creditor and the insolvency rate.

After the final distribution, creditors no longer have the opportunity to assert their claims in the proceedings. This also applies to those who are titled. Conversely, this means that the final date is the last possible date to re-register an insolvency claim for examination.

In addition, it will be decided what to do with non-recoverable objects of the bankruptcy estate. As a rule, they accrue to the debtor again through release. Exceptionally, they can benefit a single creditor.

What does the final distribution mean for the debtor?

For you as the debtor, there will be significant relief shortly after the final distribution. Because after the final distribution, the insolvency court cancels the insolvency proceedings in the narrower sense. You are entering what is known as the ‘good conduct' period (or what is known as the `good conduct' phase). From then on, your reporting obligations to the insolvency administrator / trustee are reduced and you can save up your assets again.

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