Expert: Mark J. Markus- California Bankruptcy Attorney - 3/16/2011

Question
QUESTION: I filed for Ch7 bankruptcy in early Dec 2010-due to be discharged at the end of this month. I am shocked to find out now that a distant relative died out of state in Nov 2010, and I am named in the trust. The trust names 4 beneficiaries, and does have a spendthrift clause. The trust is due to be dispersed in the next 3-6 mos. Is there any way this is exempt from the bankruptcy? If so, is there a timeframe (180 days post filing?)when it would be safe to receive the funds? What are the chances of a reopening by the trustee after BK case is closed? I know I am legally responsible to report this to the trustee, I just want to know what to expect first.

ANSWER: You became entitled to receive the funds prior to your bankruptcy case being filed, so there is no doubt that your interest in the proceeds is an asset of the bankruptcy estate.  When you receive them is completely irrelevant.

You MUST immediately amend your bankruptcy schedules to include your beneficial interest in the trust.  Whether you can exempt it of course depends on the amount you are to receive, and the exemptions laws applicable to your case.  Exemption laws are based on the state where you resided for the 2 years prior to filing your bankruptcy case or, if you lived in more than 1 state during that period, in the state where you resided for the greater part of the 180 days prior to that 2 year period.

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/

---------- FOLLOW-UP ----------

QUESTION: The Trust is being handled in another state other than Ohio. Does it make any difference? Which state would have presidence over the case? It is my understanding that every state has different exemptions/rules regarding spendthrift trusts. I will contact my attorney for anything further. Thank you for your response.

Answer
It doesn't make any difference.  On the date you filed your bankruptcy case you had a beneficial interest in a trust that had already vested  (by virtue of the death of your relative).  This has nothing to do with spendthrift clauses or state law (unless either of those negates your interest in the Trust, in which case there's nothing you need to exempt anyway).

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/