Short answer. No. Property held by an insolvent debtor as trustee of an express or implied trust is excluded from the insolvency proceedings entirely. It is not the debtor's property — it belongs to the beneficiary of the trust — and his creditors have no claim on it.
What the law says
Property held by the insolvent debtor as a trustee of an express or implied trust, shall be excluded from the insolvency proceedings.
Civil Code, Article 2240 — Trust Property Is Not the Debtor's. Read the full provision →
Trust property is not the debtor's property
Article 2240 reflects a fundamental principle: an insolvent debtor's creditors can only reach what belongs to the debtor. When someone holds property as a trustee — whether under a written trust agreement or an implied trust arising from the circumstances — that property does not belong to the trustee. It belongs to the beneficiaries of the trust. Because it is not the debtor's asset, it cannot be swept into the insolvency proceedings and distributed among creditors. The exclusion is automatic.
Express trusts and implied trusts
The article covers both types. An express trust is one created deliberately, typically in writing — a formal trust deed, a deposit of funds for a specific purpose, or a clearly documented arrangement. An implied trust arises from the facts and circumstances without an explicit agreement: for instance, when someone pays for property in another's name, or when property is transferred under conditions that equity recognizes as creating a trust relationship. Both are excluded from the insolvent's estate, provided the trust can be established.
The practical challenge: proving the trust exists
The exclusion is only as strong as your ability to prove that the trust existed and that the specific property at issue was held on trust for you. If you have a written agreement, receipts showing the property came from you, or other clear documentation establishing the trust relationship, you are in a much stronger position. If the arrangement was informal — a verbal understanding, or a course of conduct — you may need to demonstrate the implied trust through evidence. The sooner you assert your claim and produce documentation in the insolvency proceedings, the better.
Acting quickly in the proceedings
If you learn that an insolvent debtor who holds your property in trust has entered insolvency proceedings, do not wait to see how things develop. File a claim or motion asserting the trust relationship and asking the court or administrator to exclude the property from the insolvent estate. Delay can complicate recovery — particularly if the property is mixed with the debtor's own assets, converted, or otherwise dealt with before you assert your rights. A lawyer can help you prepare the necessary documentation and present your claim in the proceedings properly.