Can You File for Bankruptcy if You Are a Beneficiary to a Trust?
Filing bankruptcy is often a difficult choice for people to make for many reasons. Legal ramifications come with filing bankruptcy, and being a beneficiary to a trust is a case where the details of your situation must be carefully examined before filing bankruptcy.
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Bankruptcy
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Bankruptcy offers both businesses and consumers the ability to get out from under overwhelming debt. The reasons people file bankruptcy are numerous, such as illness, job loss, or simply finding yourself in a position of too much debt. Depending on the type of bankruptcy you qualify for, your debt will either be entirely eliminated or reduced to an amount that is manageable for you. Being a beneficiary of a trust can impact whether you qualify for bankruptcy or what type of bankruptcy you qualify for.
State Law
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The state law where the trust was executed will determine, in part, whether your bankruptcy trust will affect your bankruptcy. If your trust has a spendthrift clause and your state enforces this clause, your trust is considered non-transferable and cannot be included in the bankruptcy. Contact your local bankruptcy court to inquire if your state enforces a spendthrift clause.
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Wildcard Exemptions
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The other possibility to exclude a trust from a bankruptcy is if your state offers a wildcard exemption that is less than the amount of your trust. Wildcard exemptions are not offered in every state. Your local bankruptcy court can provide you with information on your state's allowable exemptions.
Bankruptcy Attorney
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When considering bankruptcy, using an attorney is always wise. A bankruptcy case with your being a beneficiary to a trust should always be reviewed with a bankruptcy attorney who knows your state laws. Many bankruptcy attorneys offer a free consultation at which you can discuss the details of your trust and get expert advice.
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References
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