We’ve spoken earlier about individual owners of incorporated businesses and how the company is handled in a bankruptcy. Now let’s take a look at what happens when a debtor filing for bankruptcy is a partial owner of an incorporated business. In bankruptcy, any stock owned by the debtor filing for bankruptcy comes under the jurisdiction of the bankruptcy trustee who can liquidate it to repay creditors. When a debtor owns some stock in a company, that stock can be sold by the bankruptcy trustee to repay creditors.
For example, if a debtor is a 50% owner of a company and owns 50% of the stock, that stock can be sold at market value to repay creditors; but it must honor any written rules about the sale of that stock. For example, if the debtor is in a contract that says that the partner must have the first opportunity to buy the stock, the bankruptcy trustee must honor this rule. Also, the debtor can buy back the stock from the bankruptcy estate if he pays the “fair value” for the stock.