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If you are facing very serious debt and a poor financial situation, you may consider filing for bankruptcy. Although bankruptcy often has a negative connotation, it can be a responsible financial choice that can give you a fresh start and lead to a financially stable future. However, if you are considering bankruptcy, it is important to understand how bankruptcy can impact potential assets, including an inheritance.
Timing Matters
Whether or not you can keep an inheritance depends on several factors including when you receive an inheritance. When you file for bankruptcy, everything you own or have the right to own on the date of filing becomes part of the “bankruptcy estate.”
What this means is that if a relative dies and leaves you an inheritance, such as money or property, before you file for bankruptcy that inheritance will be a part of the bankruptcy estate. This is true even if you don’t actually have the money or property yet, it still counts as a part of your estate. In a Chapter 7 Bankruptcy, because your inheritance is part of the bankruptcy estate, the bankruptcy trustee can use the inheritance to repay your creditors. The only way it can be protected is through an exemption if one is available.
In a Chapter 13 bankruptcy, your assets aren’t taken to pay back creditors, but instead you participate in a 3-5 year repayment plan. If you receive an inheritance before or during your bankruptcy and repayment plan, the trustee may require you to adjust the plan and increase your monthly payment amounts.
Chapter 7 Bankruptcy and the 180-Day Rule
If you receive an inheritance after you filed for bankruptcy, you may think your inheritance is totally safe. However, it could still be at risk because of the 180-day rule. Under this rule, if you receive an inheritance within 180 days (6 months) after you file for bankruptcy, it still counts as a part of the bankruptcy estate. This means, that in a Chapter 7 bankruptcy your inheritance can still be used to pay off creditors.
However, if you receive an inheritance after 180 days then your inheritance is protected. The property or money you inherit won’t be considered part of the bankruptcy estate. This means that the trustee won’t have a claim to it and can’t use it to pay outstanding creditors. In this case, your inheritance is yours to keep.
Get Your Questions Answered Today
If you have received an inheritance and are about to file or have filed for bankruptcy, you will be required to disclose those assets gained through inheritance to the court and trustee. If you have questions about how bankruptcy may impact your inheritance, or if you have inherited assets you want to keep, you should discuss your case with an experienced bankruptcy attorney.
At the Ballard Law Group, we have years of experience helping individuals navigate the details of filing for bankruptcy, including helping them understand the implications a bankruptcy can have on an inheritance. To get your questions answered, contact The Ballard Law Group to schedule a free bankruptcy consultation. You can reach us by calling our office at (404) 800-9939.