§ 10.7 — Trust Is Not Eligible, but Trustee May Be Eligible
Revised: April 25, 2016
When an individual debtor is also a trustee, counsel must be careful to sort out and segregate the assets, liabilities and incomes of the two entities. If there is property in trust titled in the name of the individual debtor as trustee, the legal title must be scheduled by the debtor with appropriate notation of the limited nature of the debtor’s interest.3 If the individual debtor receives income in trust for beneficiaries, the filing of Chapter 13 by the trustee may protect the debtor’s legal title to the trust income, but the equitable interests in the trust income do not become property of the Chapter 13 estate.4
1 In re W.F.C. Real Estate Trust #1, 236 B.R. 90, 91 (Bankr. S.D. Fla. July 9, 1999) (Hyman) (Sua sponte dismissal on ground that a trust is not eligible for Chapter 13. “Notwithstanding the fact that § 109(e) does not expressly preclude a trust from being a debtor under Chapter 13, the Court concludes, in accordance with §§ 101(3) & (41) of the Bankruptcy Code, . . . that a trust does not qualify as an ‘individual with regular income’ and so cannot be a debtor under Chapter 13.”); Federal Nat’l Mortg. Ass’n v. Foster, 19 B.R. 28 (Bankr. E.D. Pa. Apr. 6, 1982) (King).
2 Federal Home Loan Mortg. Corp. v. Wynn, 29 B.R. 679 (Bankr. D.N.J. May 6, 1983) (Lipkin) (Individual debtor who is also trustee for a minor child is eligible to commence a Chapter 13 case.); Provident Nat’l Bank v. Kirby, 9 B.R. 901 (Bankr. E.D. Pa. Mar. 27, 1981) (Goldhaber) (Trustee for a minor child is not eligible for Chapter 13 because trustee does not have a source of regular income.).
3 See 11 U.S.C. §§ 541(d), 1306(a).
4 See 11 U.S.C. §§ 541(d), 1306(a); Provident Nat’l Bank v. Kirby, 9 B.R. 901 (Bankr. E.D. Pa. Mar. 27, 1981) (Goldhaber) (Income received by a debtor as trustee for the debtor’s children is not regular income available to fund a Chapter 13 plan.).