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Can cannabis affect your ability to file for bankruptcy?

On Behalf of | Aug 9, 2022 | BANKRUPTCY LAW - Business & Commercial Bankruptcy

Most cannabis use in Idaho continues to be illegal for both recreational and medical purposes. However, a growing push for acceptance of THC and hemp in the state may lead the way toward laws allowing for the production of cannabis. If you plan on becoming involved in cannabis production, consider the following ways that decision impacts your ability to file for bankruptcy.

Many cannabis products remain illegal under federal law

Despite growing acceptance of cannabis-related drugs for either recreational or medicinal purposes, the federal government still classifies drugs produced from cannabis as Schedule I substances. This makes most of the products created from cannabis illegal at the federal level.

Income earned from cannabis disqualifies you for federal bankruptcy

The federal government’s classification of marijuana makes it difficult for companies to obtain business bankruptcy protection. This is due to the following stipulations determined by the United States Trustee concerning federal bankruptcy courts:

  • Bankruptcy must not be used as part of an ongoing crime
  • Trustees must not administer assets when a violation of federal crime has occurred.
  • Trustees should notify the United States Trustee whenever assets associated with cannabis have been detected in a bankruptcy case.

Indirect cannabis income prevents you from filing bankruptcy

Even if your cannabis-related income originates from an indirect relationship with the plant, it can still make you ineligible to file for bankruptcy. Companies selling equipment to cannabis industries have been deemed ineligible for bankruptcy protection in U.S. Bankruptcy Court.

Can you file for bankruptcy if you have a cannabis-related business?

Although the guidelines for filing for bankruptcy appear to be quite strict, legal guidelines for cannabis constantly change.