Protecting Your Firearms During Bankruptcy
May 17th, 2017 by Bunch & Brock
If you are faced with a bankruptcy in the state of Kentucky, there are a few items that are allowed to be kept during this time. One of these items is firearms. Although guns must be listed as assets in bankruptcy, gun collections are usually exempted under the Wildcard exemption, so you might be able to keep your collection depending on its value. Most people believe they can just transfer their guns to someone else to avoid listing them in the bankruptcy petition, but this is a bad idea. If there have been any transfers of items within the past two years, it will be questionable during the filing and must be disclosed.
Solutions for protecting your firearms:
Although you may still be required to list your gun collection in the petition, one way to protect your firearms for future transfer is to place them into a Gun Trust. This trust is a revocable, living trust that has specific language, schedules and instructions that must be followed to legally manage and transfer weapons. This should be drafted by an attorney to ensure the ATF will accept the trust and to make sure all beneficiaries and trustees have the necessary protections in place to avoid prosecution. A trust may make it more difficult for a bankruptcy trustee to take them away from you in bankruptcy.
How does a gun trust work?
First, it is important to understand what types of firearms and devices are allowed in Kentucky. The National Firearms Act (NFA) allows the following:
- Machine Guns
- Short –Barreled Rifles
- Short-Barreled Shotguns
- Destructive Devices (bombs, grenades, rocket launchers)
Gun owners in Kentucky who are considering adding an NFA firearm (firearms subject to the National Firearms Act) to their collection should consider creating a gun trust before they make the acquisition.
The most popular NFA firearms in Kentucky are suppressors, short-barreled rifles, short-barreled shotguns, and fully automatic firearms.
Advantages of a Kentucky Gun Trust:
Any co-trustee can use and possess NFA Firearms registered to the Gun Trust. Any gun under the trust can be used and possessed by more than one person. NFA firearms registered to an individual resident can be used and possessed only by that individual during their lifetime. The NFA firearms are inherited by beneficiaries. The firearms in the trust pass to the beneficiaries outside of the probate process according to the terms and conditions of the gun trust agreement.
Gun Trusts Protect Your NFA Firearms upon a Determination of Incompetency:
NFA firearms registered to a Kentucky gun trust can be protected if the Settlor/Grantor is later deemed to be incompetent, since any co-trustee can take possession of the NFA firearms to hold them on behalf of the Settlor. As a result, the Settlor will retain the ability to either direct that the NFA firearms be sold and the cash returned to the Settlor, or that the NFA firearms continue to be held in trust for the beneficiaries to inherit when the Settlor dies.
On the other hand, NFA firearms registered to an individual resident of Kentucky who is later deemed to be incompetent are subject to confiscation by the ATF immediately, since it is illegal for any other individual to take possession of the registered individual’s NFA firearms during the individual’s lifetime.
If you are thinking about filing bankruptcy and have questions about how your gun collection may be treated, you would be wise to seek the counsel of a bankruptcy lawyer who can help you evaluate your situation and determine the best course of action. Based in Lexington, the KY bankruptcy attorneys at Bunch & Brock have more than 35 years of experience handling personal bankruptcy cases across Kentucky. To get started, or if you have any questions about this topic, call us at 859-254-5522. You can also reach us by filling out this online form.