By definition, bankruptcy is a clearance of debts by someone facing financial hardships. People owed money by the individual filing bankruptcy do have rights to recover funds. Their rights to recover from trusts that the bankrupt individual holds have a number of issues that could be challenged in Florida proceedings.
Trusts are created by an individual to hold assets to distribute to others in the future. A revocable trust can be ended and the assets reclaimed by the person creating the trust. An irrevocable trust cannot be ended by the actions of the person who created the trust. In revocable trusts, the creator of the trust controls the trust property until his death. Once the person dies, the trust assets are dispersed to the beneficiaries usually with the assistance of a trustee.
When the creator of a trust declares bankruptcy, the trust may be considered part of his assets and subject to seizure by the bankruptcy trustee and utilized to repay debts. Other assets such as cash, bank accounts, homes and vehicles are also subject to seizure. Depending on the circumstances, any or all of these assets can be taken as part of the bankruptcy. Whether the trust fund falls within the assets subject to bankruptcy proceedings depends entirely on how it is set up.
Bankruptcy is a specialized legal proceeding that may require the assistance of lawyers experienced in the field. When the financial situation of the person filing bankruptcy includes financial products such as trusts, the situation might become more difficult. Bankruptcy attorneys in Florida may help individuals understand the full ramifications of continuing with the filing.
Source: Fox Business, “Is a Trust Untouchable in Bankruptcy?” Justin Harelik, April 9, 2013