Can I File Bankruptcy If I have a Trust Fund?

Female on White BackgroundWhen it comes to bankruptcy, it’s important to know the limitations of a bankruptcy. One area we occasionally have people ask about is whether they can file bankruptcy or not if they have a trust. To answer this question, yes; generally speaking, someone with a trust fund is more than likely able to file a bankruptcy.

There are two different types of trusts. There is a revocable trust and an irrevocable trust. A revocable trust is when the grantor (the person who created the trust and put property into it) of the trust has full access and control over the trust and at any given time can access the property in the trust. This is true only until the passing of the grantor. The beneficiary of the trust (the person that will receive the trust) is not able to control the assets of the trust until the grantor of the trust is deceased. Even then, the beneficiary may not have full control over what happens to the trust. This is due to there being provisions and rules associated with the trust that may limit what the beneficiary can do with the trust and the assets in the trust.

An irrevocable trust means the trust cannot be changed, and the assets in the trust cannot be accessed, without permission from the beneficiaries. This is because the grantor of the trust has given up their rights of ownership of the assets in the trust. The beneficiaries may not be able to access a trust instantly, but because the grantor has removed their ownership rights, the beneficiaries of the trust have some legal rights to those assets.

The main concern with trust funds is whether or not the trust can be protected from creditors. There are many allowances that will let you protect a trust. One of the most common allowances in the legal field is a “spendthrift” clause. A spendthrift clause can limit creditor’s claims to trust assets, regardless of whether the trust is revocable or irrevocable.

If you are a beneficiary or a grantor of a trust fund, and you are considering filing for bankruptcy, it is very important that you make your attorney aware of the trust. You should also have your bankruptcy attorney or trust attorney look over the trust and contract to be sure that it can be protected from creditors.

Should I Tell Creditors I’m Filing Bankruptcy?

TelephoneWhen it comes to filing a bankruptcy, one of the most frequently asked questions are “what should I tell my creditor’s after I have decided to file a bankruptcy?” One of the main issues that people with unsecured debt struggle with is the constant and harassing phone calls from creditors. In order to defer some of those phone calls from creditors, clients can inform their creditors of their decision to file a bankruptcy and give them an idea of which chapter (Chapter 7 or Chapter 13) they will be filing.

For a client that has already retained an attorney and provided the attorney with their paperwork, the client may give the creditor their attorney’s contact information. The client should inform the creditor that they have retained an attorney and let the creditor know that they should no longer contact them, but instead, should contact their attorney.

By a client informing a creditor of their bankruptcy filing, the creditor will usually stop all contact with the client and begin contacting the client’s attorney. However, creditors are technically allowed to contact a client regarding the debt owed until the client has been issued a case number after their bankruptcy is filed. A client will not receive their case number until their bankruptcy petition has been filed with the court.

Am I Personally Responsible for Business Credit Card Debt?

Male on White BackgroundYou are only personally liable for the debt if you sign as a personal guarantor. 

What is that you ask?  It is someone who ?guarantees? (hence the derivative ?guarantor?) to pay for someone else?s debt should they default on their obligation.  It is quite like a co-signer but normally applies to business debt.

As you know, businesses come and go as the days go by.  It is quite easy to open and close a business; and as many credit card and loan companies understand this, they will often have the owner of the company personally sign as a guarantor on the loan.  This protects the creditor should the business close; this way even if the business itself is not open, there is still a live body that obligated to pay them their monies owed.

The good news is that if you have signed as a personal guarantor on a business credit card or loan and the business has closed, should you file a bankruptcy, you can include that business debt as part of your personal debt to relieve your personal liability on the debt owed.  If the business is still open then the creditor has every legal right to go after the business for the debt owed, but not you personally.

Can An Undocumented Worker or Illegal Immigrant File for Bankruptcy?

Question Mark ManCan a person who is not a legal resident of the United Stated file for bankruptcy in the US? According to 11 USC §109(a), any person that resides or has domicile, a place of business, or property in the United States or a municipality, can in fact file a bankruptcy. This means that anyone who lives, owns a business or owns property in the United States can file for bankruptcy, whether they are here legally or not. They do, however, have to have some sort of identifying number such as a social security number or a tax payer ID number.

However, if someone is applying to become a legal citizen of the United States, a bankruptcy on their record could negatively impact their application. Immigration officers typically delve into many areas of a person’s life, including their finances. An immigrant must be able to prove that they are of good moral character in order to be granted citizenship in the United States. Although we have never heard that filing a bankruptcy has stopped someone from receiving citizenship, it is something that should be considered. Having a bankruptcy in their record could throw up a red flag to the immigration office about their morality. There is currently no law that states that a bankruptcy can affect your immigration status legally, but the issue of morality could come in to play.

There is also the chance that information divulged in a bankruptcy proceeding could affect ones immigration status. If in the bankruptcy it is revealed that there are taxes owed, jobs that were obtained illegally, refusal to pay child/spousal support etc., this could greatly affect ones chance to stay in the US and be granted citizenship. If you are an immigrant to the United States and are considering bankruptcy make sure to contact an immigration lawyer and /or bankruptcy lawyer in your area soon.

How Can I Get Mortgage Statements Sent To Me Again After Filing Bankruptcy?

Male on White BackgroundOnce your case is filed with the U.S. Bankruptcy Court and the creditors are notified of the filing, your mortgage company may stop sending you the monthly statements for your house payment.  This is a protective measure on their part.  The mortgage company may be in violation of the federal bankruptcy automatic stay if they send a statement attempting to collect a payment on your mortgage after you have decided to surrender or give up your home in bankruptcy.  This violation carries severe penalties against the mortgage company including fines, so they do their best to avoid this violation.

A few days after your bankruptcy is filed with the Court, a notice will be sent to the mortgage company and other creditors notifying them of your intention to retain or surrender your house and other secured items including automobiles and furniture.    If you filed Chapter 13 bankruptcy the creditor will receive a copy of the Chapter 13 plan.  If you are keeping your home they will usually resume sending monthly statements to you.  However, in many cases the Chapter 13 bankruptcy Trustee will be paying the mortgage on your behalf so contact your attorney prior to sending any payments to the mortgage company.

If you filed Chapter 7 bankruptcy the secured creditors including the mortgage company will receive the Statement of Intention.  Often this is sufficient notice for your mortgage company to resume sending you the monthly statements.  In other cases the mortgage company may send a letter requesting that you and your attorney sign a notice requesting that statements be mailed to you, while other mortgage companies may wait until after your bankruptcy is discharged before sending statements.  Regardless of whether you receive the monthly statement from your mortgage company, it is extremely important that you continue to make your monthly payment to the mortgage company if you wish to retain or keep your home after filing Chapter 7 bankruptcy.  If you wish to keep your home but fail to make your monthly mortgage payments after filing bankruptcy, the mortgage company may file a request within the bankruptcy court to foreclose on your home. Should this occur, you would be required to pay the amount you are behind on your home plus additional cost incurred by the mortgage company.

 

 

Can I Sign A Reaffirmation Agreement On My Mortgage?

Laptop KeyboardWhen the bankruptcy laws were reformed in 2005, one of the new requirements for some Chapter 7 cases was a “reaffirmation agreement.” A reaffirmation agreement is a document that is often filed in Chapter 7 cases. However, there are only certain circumstances when a Chapter 7 debtor should sign a reaffirmation agreement.

What is a reaffirmation agreement?

A reaffirmation agreement is a document that is signed by the debtor (the person who filed bankruptcy), the debtor’s attorney, and the representative for the creditor. The purpose of a reaffirmation agreement is to keep you (the debtor) liable for the debt you owe to that creditor, even though you are filing bankruptcy.

My mortgage company is saying I need to sign (or should have signed) a reaffirmation agreement for my mortgage/house.

If you have a house that you want to keep after your Chapter 7 case is filed, then you do not need to sign a reaffirmation agreement. The way the bankruptcy laws are written allows you to keep your house as long as you stay current on your monthly mortgage payments. In fact, in the Middle District of North Carolina (Greensboro, Winston-Salem, and Durham) the bankruptcy Judges do not allow reaffirmation agreements to be signed on mortgages unless there is a substantial change in the terms of the loan that are benefiting the debtor.

So in other words, even if your mortgage company is pushing you to sign a reaffirmation agreement, unless they are agreeing to change the terms of the loan under the reaffirmation agreement by changing the interest rate or monthly payment, then you cannot sign a reaffirmation agreement on your house.

What Is A Quitclaim Deed?

Filling out paperworkA quitclaim deed is what some people think is called a “quick” claim deed – but the correct terminology is quitclaim deed. In North Carolina, a quitclaim deed is a document that is signed by two parties with the purpose of transferring one party’s interest in real estate to another party.

When Is A Quitclaim Deed Used?

A quitclaim deed is usually used when property is being transferred as part of a divorce proceeding or as a gift between family members, because a quitclaim deed does not give a warranty as to the title of the property. On the other hand, when a house is sold through a regular sale between two parties who are not family members, and there is a title warranty, a warranty deed is usually the type of deed that is used.

Should I Sign a Quitclaim Deed?

In North Carolina, if you are asked to sign a quitclaim deed, be sure you are aware of your rights, and talk to an attorney about your rights if necessary. Generally speaking, it is not a good idea to sign a quitclaim deed before filing bankruptcy due to the look-back period for transfers of property. However, it may make sense for you to sign one after a bankruptcy is filed, even if you are surrendering the property in your bankruptcy. You should speak with a bankruptcy attorney if you are considering signing a quitclaim deed prior to filing bankruptcy.

Can I Withdraw Or Take Out A Loan From My Retirement After Filing Bankruptcy?

Regardless of whether you have filed a Chapter 7 or Chapter 13 bankruptcy, you cannot withdraw money OR take out a loan from your retirement account without court permission.

Senior coupleIf you are in a Chapter 7 case, it is usually best to just wait until the bankruptcy case is completed and then if you need to withdraw funds or take out a loan, you can do so. If you request court permission during your bankruptcy, there will be attorney fees involved and it could lengthen your time in the bankruptcy case.

If you are in a Chapter 13 case, you need to contact your attorney as soon as you realize you may need a loan or withdrawal. The process takes some time, and usually your income and expenses have to be reviewed along with drafting the motion, filing the motion, and waiting for a court hearing. This whole process can take at least a month. Your attorney will also ask you specific questions about why you need to do the withdrawal or loan. The court will only approve withdrawals or loans if they are necessary, such as to fix your air conditioning unit, pay for a medical procedure, etc. The court will not approve the withdrawal or loan for unnecessary reasons such as taking a vacation or installing a swimming pool in your backyard.

Remember, communication with your attorney during your bankruptcy case is the key to a successful case. If you are ever in doubt, contact your attorney to find out how to proceed, but remember you cannot touch your retirement account during your bankruptcy case without getting court permission.