Is Restricted Stock Protected from Creditors?

No, restricted stock is not protected from creditors. A creditor can access the stock, but only to the extent that the debtor themselves can as well.

There are very few cases in Florida dealing with a creditor’s rights in a debtor’s restricted stock. There are bankruptcy cases which hold that the present fair market value of the restricted stock, considering all restrictions, is part of the bankruptcy estate and may be taken by a trustee in bankruptcy. The debtor then could redeem the stock for its current market value considering the sale restrictions.

I found state court cases that treated restricted stock as untouchable by creditors. One state court case stated that a creditor cannot legally take stock from the debtor if the debtor cannot voluntarily assign the stock to the creditor.

A creditor acquires no more than the debtor’s rights and interest in the debtor’s assets. Restricted stock is not an exempt asset. A creditor probably could levy upon the stock. The levy may prevent the judgment debtor from exercising his rights to redeem the stock. The company may intervene and contest the creditor’s attempt to sell the stock.

I suspect that many creditors would levy upon the stock if nothing more than to prevent the debtor from accessing the value in this asset for their own benefit.

Jon Alper

About the Author

I’m a nationally recognized attorney specializing in asset protection planning. I graduated with honors from the University of Florida Law School and have practiced law for almost 50 years.

I have been recognized as a legal expert by media outlets such as the New York Times and the Wall Street Journal. I have helped thousands of clients protect their assets from creditors.