A few days ago I wrote a blog post comparing the asset protection of Totten trusts and UTMA(“uniform gift to minors”) financial accounts. I explained that the Totten trusts were not exempt from the bankruptcy estate because the accounts could be revoked or invaded by the parent, whereas the UTMA accounts were protected because deposits made to these accounts are legally irrevocable. The asset protection of the UTMA account presumes that the parent follows the law.A caller from Miami had read the UTMA blog posts and wanted to confirm the protected status of his child’s account. The story is told that a few years ago when the caller was “rich” he made a six figure deposit into his only child’s UTMA bank account. His intent was to set aside some money for his child’s college education. Then, the recession. The caller lost over a year ago. He spent his savings supporting his family. In his last effort to keep his house he began paying his mortgage from his child’s UTMA account. He wants to know whether a bankruptcy trustee could take his UTMA account in the event he files Chapter 7 bankruptcy because he wants to continue using the money to pay the house mortgage until he finds work.
I think a bankruptcy trustee would have a good argument to include debtor’s UTMA account in the non-exempt bankruptcy estate. The law protects UTMA accounts because this type of account is an irrevocable gift to a minor child. When this parent disregards the irrevocable nature of the account and treats the money as his personal savings account he is destroying the reason for the account’s protection. Debtors should not be allowed to asset protect their own savings and checking accounts just by bestowing them with a UTMA label.
If debtor’s want to protection benefits of a UTMA account they must follow the rules; once the parent gives the money to the child’s UTMA account the parent cannot get it back. If the parent does not follow that simple rule then they should forfeit the UTMA benefits and the protection in a bankruptcy proceeding.
You may be surprised that you do not have to appear before a judge when you go to the United States Bankruptcy Court. The reason for this is that you have not committed a crime. You are choosing to file bankruptcy, and unless you have done so falsely, you are not guilty of wrongdoing. For this reason you will only face the trustee in bankruptcy district court.
Tagged: Bankruptcy Information
You can choose to file bankruptcy under the chapter 7 or chapter 13. Chapter 7 bankruptcy is chosen when you wish to pay off all your debts. This may be followed by selling your home or car.
The filing for chapter 7 bankruptcy or chapter 13 bankruptcy may not include the UTMA. This is meant for the minors safety and it must be protected for the sake of minors future. There are definitely some alternates to include UTA in filing bankruptcy. That’s really nice!
I had to help my mother go through bankruptcy. I thought the process was going to be much more painful than it was. I also thought everyone would lecture you along the way. All things considered it was a pretty painful process and I didn’t feel like anyone was shaming us over it.
You described very well on this topic. I did not know much thing about Uniform gift to minors. Thanks for sharing this valuable information.
My mother had to file chapter 7. I’m curious how this new law would have affected her.
You’re so interesting! I don’t suppose I’ve truly read a single thing like this before. So wonderful to find someone with genuine thoughts on this topic. Seriously.. many thanks for starting this up. This site is one thing that’s needed on the internet, someone with some originality!