The Living Trust and the Bankruptcy Estate.

Every person should have an estate plan. A good estate plan would have a financial power of attorney, medical power of attorney, and a will. A really good estate plan might also have a revocable living trust. A revocable living trust is an estate planning device which avoids probate by transferring ownserhip of assets to the trustee of a living trust. A common transfer is a house, vacation property, or a bank account to the trust. When the trustee of a trust is also the creator, or settlor, then that trust is called a self-settled trust which is for the benefit of the settlor initially and the heirs upon the settlor’s death. They can be complicated.

What happens when a person files for bankruptcy protection, at least in Michigan, when they have a living trustwhich owns assets? [Read more…]

What Comes First: Bankruptcy or Divorce?

When considering both, the first issue is timing. Should you file it before, during, or after the divorce? A married couple, even if not living together, can file a joint case. You cannot file jointly after the divorce is over even if the debts you are looking to discharge are joint debts. Some of the advantages of filing before: Elimination of all debts which will reduce arguments over who pays for what; Paying for only one bankruptcy and not two; Making a spouse who would not be eligible for filing for a Chapter 7 eligible by using a larger household size.

If the bankruptcy petition is filed during the divorce, the divorce action is stopped in its tracks in regard to any property settlements. All property of the debtors is property of the bankruptcy estate and cannot be divided up in any property settlement until either the bankruptcy is over or permission is received from the bankruptcy judge. This automatic stay does not apply to child support, spousal support, or custody and parenting time but only to property division. While it may be necessary to file during a divorce, it can slow things down.

If you file a Chapter 7 after the marriage is over, you should know spousal support, and child support are never dischargeable. You may not be able to discharge any attorney fees you owe to your former spouse’s attorney. You may also have a problem if you have any “hold harmless” agreements in the Judgment. An example of a hold harmless clause is when a husband is ordered to pay a credit card bill that is only in the wife’s name. You can discharge property settlements only in a Chapter 13 but not a Chapter 7. Confused yet? It gets tricky figuring out what is property and what is support.

Every family is different and so are their needs. If you are getting a divorce, it may be nice to get a fresh financial start as well.