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Can my trust be liquidated in a Chapter 7 bankruptcy?

If you have a trust which provides you with regular income, you may worry that declaring bankruptcy in Oregon would allow your creditors to seize the assets of the trust in order to pay your debts. According to BankRate.com, that may be true, depending on the type of trust you have.

When you put assets into a revocable trust, as the grantor you have the ability to make changes at any time. The person you appoint as trustee will not be given control until you die, and it is passed to him or her. In this case, because you have access to the assets, it is likely that they may be sold, and the money used to pay your creditors.

An irrevocable trust puts your assets in the hands of the trustee while you are still alive. Even if you are the beneficiary who is receiving an income from the trust, the assets themselves belong to the trust, and they may be protected.

Who your trustee is may affect the level of protection you have. For example, if you have named your spouse, a creditor may have a chance at convincing the court that you have enough control over the assets. Filing bankruptcy jointly could also put the assets at risk.

Trusts are often designed specifically to prevent a person with financial difficulties from losing money to creditors through a section known as a spendthrift clause. The language used here could prevent assets from being liquidated in a bankruptcy.

Regardless of the type of trust, if you are not the only beneficiary, there could be complications. Because outcomes are often based on unique factors to the case, this general information should not replace the advice of an attorney.

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