Irrevocable Trust Fund (no access) & Bankruptcy

[N8thAn]

Jurisdiction

Georgia

My only income is social security and a monthly distribution from an irrevocable trust fund that is set up to be managed by my brother in such a manner that the funds therein a inaccessible to me under any condition so long as he lives to manage it. His duty is simply to distribute a limited amount each month and to do his best to invest to maintain it as long as possible. He takes this very seriously and will not distribute any more or any less (except for medical emergencies). Due to circumstances beyond my control the once easily livable distribution and SS can no longer pay my living expenses (long story of buying an eternal money pit, bad HOA management, personal non medical emergencies) forced me now to a point where I cannot pay my bills. I'm 70 and this is the first time in my life I'm tapped and trapped in a +27% credit situation. At the moment my credit is above 800 but in a couple of months it will crash as my cashflow won't cut it. So, the trust fund is north of $250,000 but my family made sure it is 100% inaccessible to me - can I declare bankruptcy - I guess based on my actual cash flow (SS plus monthly distribution) despite the trust fund's existence? I'm not trying any funny stuff to preserve it, it is just that as far as my personal finances/cash flow exist it may as well not exist. My brother is intractable about using his "power" to gift (which is in the trust). Restated, can I file for bankruptcy despite the existence of a trust set up for limited distribution (which is now inadequate)? I have zero power/access to it.

 

[Tax Counsel]

Restated, can I file for bankruptcy despite the existence of a trust set up for limited distribution (which is now inadequate)? I have zero power/access to it.

Assuming you've not filed bankruptcy in the recent past you may file a bankruptcy petition now. The question would be whether it would benefit you at all to do so and when would be the best time to do it. Those are best answered by a local bankruptcy attorney who has all of your financial information available to him/her.

Most creditors may not directly attach your SSA benefits. The main exceptions to that are debts owed to the IRS, SSA, student debt guaranteed by the government, certain other less common federal government debt, and alimony/child support claims. They also cannot attach funds in your bank or investment accounts directly traced to SSA payments. The best way to ensure that protection is having the SSA payments direct deposited into an account that only is funded by the SSA payments so there is no dispute what money came from SSA and what money came from elsewhere.

Your creditors may attach the money distributed to you from the trust once they have perfected their claim. For private creditors that means they need to first sue you and get a judgment against you. They'll only be able to attach the funds that are actually distributed to you and that are over whatever exemptions your state has that protect some of your property/income from attachment. They cannot reach the money still left in the trust undistributed. The details of your state's law on judgment collection will determine how much of a pain that will be for the creditor to pursue.

It may turn out that you have nothing that creditors may attach. In that case you'd be "judgment proof", a term meaning that court judgments would not affect you. In that situation it may not serve any purpose to file bankruptcy. That's something to discuss with a bankruptcy lawyer in your state.

 

[adjusterjack]

trapped in a +27% credit situation.

Explain that please.

 

[Zigner]

I'm not a lawyer...

But you are a spammer (not matter how thinly veiled).

 

[welkin]

Explain that please.

I'm thinking that it refers to the debt-to-credit ratio and how it affects PO's credit score or will soon.

 

[welkin]

. I'm 70 and this is the first time in my life I'm tapped and trapped in a +27% credit situation. At the moment my credit is above 800 but in a couple of months it will crash as my cashflow won't cut it.

At age 70 you shouldn't be so concerned with your credit score. It's nice to have a high score but unless you have some large purchases in mind, all you need is an emergency cash flow available.

While your credit score is still high, and assuming you own your home or condo, you can use your equity and get a revolving home equity line of credit. The revolving aspect is very important.

A revolving line of credit allows you to borrow money (as you need it) and pay it back (whatever amount you can afford) each month. The amount of principal you pay each month goes back into your available credit. It is a great way to be able to pay bills when you have shortfalls in cash. If you keep your principal balance low, the amount of interest you pay can be manageable.

Go check it out at a few banks and remember that only a revolving line of credit works for this.

I'm retired and I keep a revolving line of credit to use when cash flow is low. I have a $100,000 limit but almost never exceed a principal amount above $6,000. I use it instead of selling mutual funds or stocks when the markets are down and I need cash.

 

[Zigner]

At age 70 you shouldn't be so concerned with your credit score.

I disagree with this blanket statement. In this day and age, folks are living well into their 80's. It is wise to remain vigilant about one's credit situation.

 

[zddoodah]

can I declare bankruptcy - I guess based on my actual cash flow (SS plus monthly distribution) despite the trust fund's existence?

If you're asking whether you have the ability to file a petition under one of the chapters of the U.S. Bankruptcy Code, the answer is that you've given us no reason to believe you lack that ability. If you're asking whether you qualify for relief under the Bankruptcy Code, there's no way for anyone here to answer intelligently based on the limited information provided.

can I file for bankruptcy despite the existence of a trust set up for limited distribution (which is now inadequate)?

The mere existence of the trust will prevent neither your filing nor the granting of relief. However, it's possible that the specific terms of the trust might impact the granting of relief. You need to consult with a local BK attorney.

 

[zddoodah]

From the details you've shared, it appears that you have limited access to the irrevocable trust fund, and your only sources of income are your Social Security and the monthly distribution from the trust.

That's EXACTLY what the OP wrote.

Bankruptcy laws can vary

Uhhh...no. The interpretation of the BK Code may vary from circuit to circuit, but the law is uniform.

 

[N8thAn]

Trapped in 27%+ means having to use credit cards to cover the never ending emergencies, and, well, our President would do Jimmy Carter proud - means credit is expensive. As far as I can tell, while I have equity, I do have a 15 year HELOAN (around 5%) which was meant to wipe clean the slate when I bought the condo, it nearly did. But as I said, every last penny of profit wiped out by it being a Money Pit (had it inspected, the previous owners lied and hid major issues well, especially because a board member's dishonesty), then medical stuff (chronic illness needs lots of expensive supplements) and just crazy emergencies like never before. I'm semi disabled so getting out to court or classes is next to impossible, too. For the moment I'm current on everything and will see how it goes next month doing the minimums, but the writing is on the wall. I feel gratified that having a (small) boat load of money I absolutely am prohibited from touching (and managed by a brother who totally agrees with that) won't prevent bankruptcy. He himself is a self made millionaire and my "petty" total of about $35,000 is about to explode. I was fine two years ago and excited that my monthly "income" was more than when I worked, but illness and an abundance of unfortunate circumstances had me run through more than I honestly thought was possible. But given that I now have new monthly expenses not budgeted for 2 years ago which cannot be eliminated plus a 9% raise on the HOA fees and assessments (anticipate also more annual raises on HOA fees of the same level because incompetence and likely more assessments) plus additional ongoing medical (and, well, unexpectedly having both my pets develop expensive illnesses - AND DON'T SUGGEST PUTTING THEM DOWN, THEY ARE FAMILY - but I will if their conditions cannot be managed, I will) has all added up. I had a comfortable $1500/month disposable cashflow and $10,000 in savings two years ago, but now all gone. Thanks for answering.

 

[welkin]

I disagree with this blanket statement. In this day and age, folks are living well into their 80's. It is wise to remain vigilant about one's credit situation.

If by age 70 you haven't established good credit then the chances are you will never have good credit. OP has excellent credit if her score is in the 800's.

My comment was about OP being worried about her credit instead of looking for ways to supplement her income or cash flow. It was not intended to say trash your credit. It's too easy these days for people to just think that bankruptcy is the way to solve all their money problems.

 

[Zigner]

If by age 70 you haven't established good credit then the chances are you will never have good credit. OP has excellent credit if her score is in the 800's.

And that credit can drop several hundred points in a matter of a few months...