Carroll v. Takada

Summarized by Kurt Carlson , Carlson Dash LLC
8 years 7 months ago

Case Type:

Consumer

Case Status:

Affirmed

Citation:

13-cv-05995 (7th Circuit, Jul 18,2017) Not Published

Tag(s):

Ruling:

Where a debtor’s interest in a trust vests prior to filing bankruptcy, the property belongs to the bankruptcy estate and is thus not exempted under 11 U.S.C. §522.

Procedural context:

The Chapter 7 trustee objected to an exemption claimed by Catherine and John Carroll, husband-and-wife co-debtors, in the amount of $30,000.00 for property held in the wife’s father’s trust. Specifically, the trustee argued that because the father had died, his daughter had an immediate and unconditional right to receive her interest in the trust property. The bankruptcy court sustained the trustee’s objection and struck the exemption, and the district court affirmed. The Seventh Circuit also affirmed.

Facts:

John and Catherine Carroll filed for Chapter 7 bankruptcy approximately 7 months after Catherine’s father passed away. Her father left her certain property in trust, which formed the basis of a $30,000 exemption claimed by the co-debtors. The debtors claimed that the property was exempt because the spendthrift provision shields her interest from the bankruptcy estate. The court noted that the Bankruptcy Code does allow a debtor to claim an exemption for a future interest in a trust, and that Illinois statute prevents creditors from reaching property held in a valid spendthrift trust. However, the Court emphasized that these protections no longer apply when the trust property is distributed to the debtor-beneficiary. In this case, the terms of the trust gave Catherine a vested interest in the trust property 60 days after her father’s death. Accordingly, the property belonged to the bankruptcy estate.

Judge(s):

Easterbrook, Williams, Sykes

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