Chapter 7 Bankruptcy and Trusts Management

People use trusts as a way to manage their property or to pass on their wealth to their future generations. One of the most common questions that our Chapter 7 Bankruptcy attorneys in Chicago encounter is: Will our trust be in jeopardy in a Chapter 7 bankruptcy? Well, it depends on the kind of trust you have. Let’s explain:

In case of a self-settled trust:

 If you created a self-settled trust and transferred any assets to the trust during the last ten years, and if you cannot exempt those assets then the Chapter 7 Trustee assigned to the case is free to seize and liquidate them for the benefit of your creditors.

In case of a revocable trust:

In a revocable trust, the trust beneficiary, or person waiting to receive the trust, does not have immediate control of it. Instead, the person who is the creator of the trust, called a grantor, has control. In a Chapter 7 Bankruptcy case, every asset is liquidated in order to give the debtor a clean slate. A revocable trust is a type of trust that is in danger of being revoked and returned to the grantor for liquidation. 

In case of an irrevocable trust:

In case of an irrevocable trust, the beneficiary, or filer, actually has control over the assets available to them; it is possible for creditors to access the contents of the trust for the purpose of repaying debt. With this type of trust, you can shield your assets, such as a life insurance policy, from estate taxes for future generations. Chicago Bankruptcy Lawyers at The Law Offices of Chang and Carlin can help you decide if an irrevocable trust is right for you and your family.

In case of a spendthrift trust:

A spendthrift is one who spends money with disregard. This is where the term "spendthrift trust" originates. In a Chapter 7 Bankruptcy, a spendthrift trust is protected from being revoked and the property sent back to the grantor. The bankruptcy court honours spendthrift clauses in trusts. If the person that files for the bankruptcy is the beneficiary of a trust that has a spendthrift provision, that trust will be protected from the bankruptcy court.

Bankruptcy is a way to help individuals dealing with financial hardship get back on their feet and make a fresh start. There are exceptions that allow the residents of Chicago to file Chapter 7 Bankruptcy in Chicago and still protect their trusts. For all your bankruptcy, foreclosure, IRS and tax issues, and real estate legal needs, Chang and Carlin, LLP will provide the necessary legal experience and personal service that you deserve. For an initial FREE Bankruptcy Legal Consultation, contact our Law offices in Chicago.

Disclaimer: The content provided by Chang and Carlin, LLP is not legal advice and is purely for informational purposes. The information contained herein is not a substitute for the advice of an attorney and does not create an attorney-client relationship. If you are interested in obtaining information about Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Foreclosure services, or Real Estate legal services, call our law firm at 1-866-790-8601 for a Free Legal Evaluation. Chang and Carlin, LLP serves clients in Chicago, Schaumburg. Joliet, and Warrenville.