Mississippi residents who plan to file bankruptcy should find out whether or not they have control over their trusts, according to a Bankrate bankruptcy advisor in a recent piece. The control of assets is essential in bankruptcy: When a person files for Chapter 7, a bankruptcy trustee is assigned to the bankruptcy case. The trustee specifically looks for assets such as investment accounts, trusts, savings accounts and real estate to sell to pay back debts. These items are considered non-exempt.
There are exempt items that a bankruptcy trustee can’t sell, however. Trusts can potentially fall into that category too. Whether a Mississippi resident’s trust is up for grabs depends on the type of trust it is. In a personal bankruptcy, a bankruptcy trustee typically can’t touch an irrevocable trust. The grantor in an irrevocable trust has no control since he or she has assigned control to one or more beneficiaries.
A revocable trust, in which the grantor has total control of the trust until he or she dies, is different. After the grantor’s death, the trust is then transferred to the beneficiary. For example, if a husband is the grantor of a revocable trust and his wife is the beneficiary, and the husband files for personal bankruptcy, it must be included as assets in the bankruptcy petition. Therefore, in some cases, a bankruptcy trustee can sell the assets in the trust to pay back creditors.
Personal bankruptcy, especially Chapter 7, can be an effective way to eliminate debts when used during times of financial hardship. A person who is debating whether or not to file bankruptcy may benefit from contacting a bankruptcy lawyer. There are certain bankruptcy codes that prevent a bankruptcy trustee from using the trust to pay back creditors, and an attorney may be able to provide information about these stipulations as well as assist with filing necessary forms.