Revocable Trust In A Chapter 13

[DJC]

When my wife an I originally had our attorney meetings to start the chapter 7 (which is now a chapter 13), we disclosed that we had a revocable trust on file with an attorney. Is there any problem with that? Our house is in the revocable trust. The revocable trust was set up years ago for probate purposes in case of death or medical reasons. I am questioning this because I have never heard our attorney give us any feedback on the issue. I'm afraid it was overlooked and will come back to bite us.

Thanks, DJC

[LadyInTheRed]

As long as you listed the trust assets on your petition, a revocable trust should be a non-issue. Putting your assets in a revocable trust is not a transfer to anyone else and does not change your rights to control the assets or your creditors' rights to attach the assets.

[AngelinaCat]

My concern would be that the Chapter 13 trustee would possibly try to revoke the Trust and get at the house.

'Hub and I have an Irrevocable Trust, and also our house and land is deeded to the State of Florida, and we retain a Life Estate. Our trustee could do nothing with it.

We were a Chapter 7 case; why did you have to do a Chapter 13?

[LadyInTheRed]

If there is not a homestead exemption available to protect the equity, then the trustee can sell the house in a Chap 7. but in a Chap 13, the debtor can keep the house as long as the plan pays to creditors at least what they would receive if the house were liquidated in a Chap 7. For a revocable trust, the assets will be treated the same as if they were not in a trust at all. Since DJC has the right to remove the property from the trust and sell it, so does the bankruptcy trustee.

Many, but not all, irrevocable trusts protect the assets from the creditors of the trustors and/or the beneficiaries. A revocable trust doesn't do that. AC, since you and 'Hub have no right to remove the property from the trust, neither did the BK trustee.

[justbroke]

Ahh... the good ole Trustee as "lien creditor" maneuver. If this was going to be an issue, the Trustee is usually pretty quick to pounce on things that could have been recovered for the bankruptcy estate. The only thing in the Chapter 13 would be the "Chapter 7 liquidation test" or "best interest of creditors test" that LITR refers to above. That means, the only issue is non-exempt equity in the Chapter 13 and how that is accounted for in that best interest of creditors test.

That's my layperson's read. If not one Trustee has been excited over this particular Revocable Trust, which you write is solely a probate avoidance tool, then there is really nothing to see here.

Reach out to your attorney and ask them to address your concern especially given the conversion to Chapter 13. You want to just feel comfortable that you won't have any surprises and find out you're in a 100% plan due to non-exempt equity issues. It never hurts to ask!