“I am considering bankruptcy, but want to know what will happen to my trust, my retirement accounts, my pension, and state tuition program savings when I file.”
What Assets Are Counted in Bankruptcy?
A common question bankruptcy filer in Massachusetts ask is which assets might be at risk when filing chapter 7 or chapter 13 bankruptcy. This answer to this question is very case-specific and complex, and ultimately depends upon the specific type of asset involved. Certain assets are exempt or excluded from bankruptcy in Massachusetts, and others are counted in chapter 7 or 13 for the purpose of either liquidation to repay creditors or used under the liquidation test in chapter 13. Let’s take a closer look at some of the assets that will not be counted in the bankruptcy estate.
A Spendthrift Trust
If you have an interest in a spendthrift trust, that trust me not being included in the liquidation analysis or in chapter 7 bankruptcy. A spendthrift trust is a trait type of trust account where you, as a beneficiary, are allowed to receive funds under very specific conditions. In the Massachusetts spendthrift trust, the beneficiary does not have any control or has very little control over when and how much is received from the trust. These types of trusts a common where one parent wants to slowly trickle out money to a child, for example, at specific ages in that child’s life or in return for achievement of certain goals. The interest in a spendthrift trust is generally not included as part of the bankruptcy estate and, therefore, not liquidated in bankruptcy. An attorney will be able to comb through the details of your trust to ensure that it fits into this exact type of trust, giving you the benefit exclusion from being considered an asset for bankruptcy purposes.
Tuition/Education Accounts
Certain state tuition programs and retirement accounts that are established for educational purposes are typically excluded from calculation as part of the bankruptcy estate. Meaning, these accounts are not generally considered assets which might be liquidated in bankruptcy.
Retirement Accounts
Again, generally speaking, retirement accounts that fall under the ERISA protections are exempt from bankruptcy. The theory in relation to these accounts is that the government wants individuals to be able to save for retirement without concern that those savings could later be subject to liquidation to repay debts.
What Is Included in the Bankruptcy Estate?
As I always say, bankruptcy and the laws surrounding the bankruptcy process are fairly complex. There will be certain assets such as a checking and savings accounts for personal use which may be subject to liquidation to pay off debt when filing for bankruptcy. The bankruptcy trustee will take a long look at all of your assets and determine which assets are protected under federal law and which are not. This fact is the reason that a bankruptcy attorney is indispensable since these attorneys are trained to weed out which assets are protected and which are not. Your attorney can inform you and guide you as to which chapter in bankruptcy would be most beneficial to you given your unique financial circumstances.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
