As one of the leading bankruptcy lawyers in Palm Beach, Florida, Drake Ozment is all too familiar with the many contributing factors that can affect a bankruptcy filing. After successfully representing hundreds of clients throughout the bankruptcy process, he explains that sifting through all of the details of an individual’s finances early on is key to financial rejuvenation. In addition to a debtor’s income and assets, one must also include money that has been reserved, and which one may not yet have access to in a trust fund.
If you have a trust fund reserved for you, but you are not in control of the money at the time you are considering bankruptcy, then Ozment explains that it should not dissuade you from filing. However, because you will eventually gain possession of this money, it can be considered an asset by the bankruptcy trustee. In many instances, Ozment says, while it may not prohibit you from filing, you may not be eligible for Chapter 7.
To explain how your trust fund affects your bankruptcy filing, Ozment reviews the clear distinctions between Chapter 7 and Chapter 13 bankruptcies, and who is a candidate for filing.
Chapter 7: This allows a debtor to discharge any of his applicable debts so that he is essentially gaining a fresh financial start. In order to file for Chapter 7, you must first meet the requirements of the means test, which takes into consideration your income, cost of living, and assets.
Chapter 13: Filing for Chapter 13 is more of a reorganization of debt so that a debtor can repay a percentage of the money he owes to creditors and lenders over a period of three to five years. Chapter 13 is an option for those who want to keep non-exempt property or who have assets or an income that the trustee deems sufficient enough to pay off debts.
Because a trust fund can be considered in the means test, Ozment says that most clients with these accounts set up will probably need to file for Chapter 13 to pay back what they can afford. Generally, he explains, no job and no money equates to Chapter 7. Of course, before deciding how to proceed, you should speak with a bankruptcy attorney about your circumstances to decide on your own bankruptcy plans.
However, because the rules surrounding a trust fund and how it can be accessed are so particular, Ozment says that it is important to weight your options carefully. If you are currently in control of the trust, he explains, then you will probably be responsible for paying a larger percentage of your debts, especially if you do not want to forfeit the fund in its entirety to the bankruptcy trustee.
The administrator of your trust fund may also have a condition in place that allows for the money to be accessed in case of an emergency. If you wish, the trust money can then be used to repay some of your debts. Additionally, Ozment says, if you have filed for Chapter 13 bankruptcy but you are going to come into your trust fund money during the repayment period, it may affect the amount of money that you owe. This is because the bankruptcy trustee is allowed to factor your expected assets into your repayment plan.
If bankruptcy is a consideration, then depending on the circumstances at hand, it may make sense for you to hold off on accessing funds from your trust account, even if they are soon to become available to you. In fact, it may be in your best interest to file for bankruptcy, clear your debts, and then use the money from your trust fund later on in life.
Since trust funds can play a role in bankruptcy cases, Ozment urges debtors to bring up their concerns with their bankruptcy attorneys. This way, they’ll get advice from experienced professionals on what to do as far as their funds are concerned.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.