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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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In the middle of divorce my husband filed chapter 7. In his

Resolved Question:

In the middle of divorce my husband filed chapter 7. In his petition, regarding SOFA 10b, the debtor failed to acknowledge the existence of transfers into self-settled trust. All of his assets were in his Revocable Living Trust which is a self-settled trust.

What are the legal ramifications of this omission?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 3 years ago.

Hi Drzman,

Were those assets listed anywhere else on the petition?

Customer: replied 3 years ago.
The percentage of his partnership in LLC's was listed on his asset list.
Expert:  cfortunato replied 3 years ago.

Is his partnership percentage the asset you said was in his Revocable Living Trust?

If so, was this partnership percentage listed on Schedule B?



Edited by cfortunato on 11/3/2010 at 4:35 PM EST
Customer: replied 3 years ago.
yes partnership percentage was listed on schedule B. yes the partnership interest was in his Revocable Living Trust.
Expert:  cfortunato replied 3 years ago.

Since that asset was listed on Schedule B, there would be no repercussions for your husband based on the fact that the asset was not also listed on the SOFA line10b. Almost all Bankruptcy petitions have some errors, and few are actually fatal to the case.

 

 



Edited by cfortunato on 11/3/2010 at 4:43 PM EST
Customer: replied 3 years ago.
How does this apply to the 10 year look back for transfers into a self settled trust.
Expert:  cfortunato replied 3 years ago.

The reason for Section 10 (a & b) on the SOFA is to discover fraudulent transfers, that might not otherwise be listed on the Bankruptcy petition. Although your husband was supposed to list that asset in Section 10b - if transferred to a self-settled debtor-beneficiary trust within 10 years before the Bankruptcy filing - there was no harm done for not listing it there, since it was listed on Schedule B, and there would therefore be no legal ramifications involved for not having listed it there.

 

 

Customer: replied 3 years ago.
As creditor spouse how would we know what was fraudulently transferred out of the RLT unless we knew what was transferred into the RLT.
Expert:  cfortunato replied 3 years ago.

That it the whole point - you do know what was transferred into the RLT, because it was listed on Schedule B. If the RLT had not been listed on Schedule B or on the SOFA, there could have been significant legal ramifications if and when the Bankruptcy found out about the omission.

 

Customer: replied 3 years ago.

The Revocable Living Trust was not listed anywhere on the schedules. The LLC's that were part of the Revocable Living Trust were listed on schedule B. The fact that they were part of a Revocable Living Trust was omitted.

Expert:  cfortunato replied 3 years ago.
It was not necessary to indicate the fact that the LLC's were part of an RLT.
Customer: replied 3 years ago.
If you list the assets that are currently in a Revocable Living Self-Settled Trust you are effectively circumventing the need to list transfers into a self settled trust for the last ten years?
Expert:  cfortunato replied 3 years ago.

If all assets that were transferred into a self-settled trust within the 10 years before filing the Bankruptcy are listed elsewhere on the Bankruptcy petition, it doesn't matter that those assets that were listed elsewhere were not also listed on the SOFA.



Edited by cfortunato on 11/3/2010 at 6:32 PM EST
Customer: replied 3 years ago.
The self settled Revocable Living Trust was not listed anywhere on his chapter 7 filing. The LLC's that were in the Revocable Living Trust were listed on Schedule B. Are you saying that a debtor does not have to specifically list a self-settled Revocable Living Trust on his bankruptcy filing. The Trustee did not know that there was a self-settled trust. How is this possible?
Expert:  cfortunato replied 3 years ago.

The Trustee does not have to know that there is a self-settled trust, as long as all the assets in that trust are listed elsewhere in the petition. If the Trustee is interested in any of these assets, he will inquire further to find out all the details.

Having assets in a self-settled trust - whether revocable or not - does not make those assets more or less likely than a non-self-settled trust to be taken by the Bankruptcy Trustee.

Customer: replied 3 years ago.
Should my divorce attorney have disputed the discrepencies in the Chapter 7 schedules filed? Would it have been beneficial for me to know of the transfers into a self settled trust?
Expert:  cfortunato replied 3 years ago.

Bringing the omission on the SOFA to the Trustee's attention would not have made a difference to the Bankruptcy proceeding. I don't know about divorce proceedings. Perhaps you could direct the second question to the "Family Law" section.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
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