If I put my assets in a self-settled trust, can I protect them in bankruptcy?

Probably not.

This is not my area of expertise.  I generally do not represent clients who have substantial assets to protect, but I can still give you the basics.

A self-settled trust is a trust where you place your assets in trust for the benefit of yourself.  This is not a safe way to protect your assets, and in bankruptcy, it is grossly ineffective.

Whether you file a chapter 7 or a chapter 13 bankruptcy, the bankruptcy trustee has the power to avoid any trust transfer you made in the last 10 years.  In other words, let’s say you put your $50,000 gold coin collection into a self-settled trust and then filed bankruptcy 9.5 years later.  The trustee can avoid this transfer (take it back), and the $50,000 in gold coins reverts back to your personal ownership.  Then, the trustee can take them and liquidate them (sell them) to pay your creditors.

What’s worse is, since the assets were not titled in your name at the time you filed the bankruptcy case, you cannot apply any exemptions to those assets.  If we had been living in California on the date of filing, you could have protected that $50,000 in coins with the California $75,000 wildcard exemption.  However, since they weren’t technically “yours” on the day you filed, there is no exemption.

The trustee’s avoidance power comes from

11 U.S.C. § 548(e):

(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—
(A) such transfer was made to a self-settled trust or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar device; and
(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.
(2) For the purposes of this subsection, a transfer includes a transfer made in anticipation of any money judgment, settlement, civil penalty, equitable order, or criminal fine incurred by, or which the debtor believed would be incurred by—
(A) any violation of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c (a)(47))), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws; or
(B) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78l and 78o (d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f).

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