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Filing a Chapter 7 bankruptcy case causes all of your legal and equitable interests in property are placed into a bankruptcy estate. A bankruptcy trustee is then appointed to administer the estate and pay creditors from any property that is not protected by law or by legal exemption. Sometimes the lines are blurred when trying to separate what belongs to you and what is property of another person, especially when you are trying to shield your minor child’s property during your Chapter 7 New York bankruptcy case.

Property that doesn’t belong to you

The most basic question to ask in determining whether the property belongs to you or to your child is simply this: “Who paid for the property?” You must claim a property interest in furniture, clothing, jewelry, electronics, etc. that you purchased for your child, even if it was given as a gift. On the other hand, you likely do not have a legal or equitable ownership interest in gifts to your child from grandparents or an ex-spouse, and that property does not become a part of your bankruptcy case. Your Brooklyn, New York Bankruptcy lawyer can help you determine your bankruptcy case will affect your child’s property.

If your child paid for the property from his or her own funds, it is generally considered the child’s separate property. For instance, if your teenage son worked all summer to earn enough money to buy a used car, the car would be considered his property. However, if you contributed to the purchase of the car, it would be joint property on a percentage basis.

Bank accounts with your child are treated as joint property on a presumptive 50/50 split, unless you can prove which deposits belong to your child. However, if the account is established under the Uniform Transfers to Minors Act (UTMA), the rules change. If you are the custodian of a UTMA account, the money is protected because it is legally not yours. Transfers to this type of account are irrevocable, but any money you deposited into this account will be scrutinized as a fraudulent transfer.

Property that is excluded

Some property is excluded from the bankruptcy estate as a matter of law. For instance, section 541(b) of the Bankruptcy Code excludes funds deposited into an educational savings account set up under section 529 of the Internal Revenue Code. But this protection is subject to some limitations. Funds are fully protected if deposited more than 720 days before the filing date; are protected up to $6,225 if deposited between 365 and 720 days; and are not protected at all if deposited within 365 days of the bankruptcy filing. The source of the funds does not matter, so long as the debtor is the owner of the account. This can create a trap for the unwary, especially if a family member (such as a grandparent) deposits into the account shortly before the owner files bankruptcy. See In re Bourguignon, 416 B.R. 745 (Bankr. D. Idaho 2009).

Property that is exempt

Property that is not the separate property of your child, and is not excluded from the bankruptcy estate by law, is included in your Brooklyn, New York bankruptcy estate. You are then entitled to use any available federal or state legal exemption to protect your interest in the property (which may only be a percentage interest). A Chapter 7 bankruptcy trustee rarely has any interest in children’s furniture, toys, and used clothing items since the fair market value for these items is little or nothing. The vast majority of Chapter 7 debtors do not lose any property.

For further questions about your Brooklyn, New York City Bankruptcy, please call me at 718 864 2011.