Filing for bankruptcy can affect more than your current debts and financial obligations. If you are about to inherit an asset, the timing of the inheritance and your bankruptcy case can determine whether the assets are part of the case.
That means the outcome may depend on when you got the inheritance, the type of bankruptcy, and applicable exemptions. These considerations can help you plan and influence your financial future.
An Inheritance Acquired Before Filing Bankruptcy
An inheritance asset received before you declare bankruptcy can be treated as an asset you own when the case begins. As such, it could be included in a bankruptcy estate and considered when determining what assets are available to pay claimants.
The type and value of the inherited property can also matter. An inheritance could include cash, real estate, investments, or personal property, and applicable exemptions may protect some or all of the value. However, exemption rules have limits and can vary by jurisdiction.
Because of this, someone who has recently received an inheritance should understand how it affects their financial position before seeking bankruptcy protection. Filing without properly accounting for inherited assets can lead to complications during the case.
An Inheritance Acquired After Filing Bankruptcy
Receiving an inheritance after initiating bankruptcy proceedings does not necessarily mean the assets are automatically protected. According to federal law, certain inheritances acquired within 6 months (180 days) following bankruptcy filing can become property of the estate in a bankruptcy case
For instance, if a relative dies after you make a bankruptcy filing, and you inherit property within the applicable period, you may need to disclose it, as it can be utilized to settle your debts.
Chapter 7 and Chapter 13 Can Affect Inheritances Differently
The bankruptcy chapter you file under can also influence what happens to your inheritance. Chapter 7 generally involves liquidating nonexempt assets, while Chapter 13 allows eligible individuals to resolve outstanding debts through a court-approved repayment plan.
Under Chapter 7, an inheritance in a bankruptcy case is often used to satisfy creditors if no applicable exemption protects it. The trustee may therefore have an interest in determining the value and availability of the inherited property.
Chapter 13 involves different considerations because the debtor generally makes payments under a debt payment plan. An inheritance acquired during the case may affect the debtor’s financial circumstances and could potentially influence the repayment arrangement.
The specific consequences depend on the circumstances, including when the inheritance is received, its value and nature, and the applicable bankruptcy rules.
Plan Ahead to Protect What Matters Most
The type of relief, the nature and value of the assets, and available exemptions can all influence the outcome of a bankruptcy case. You therefore need to involve an attorney to protect your inheritance when facing financial difficulties
At Kanzer F. Kanzer & Associates, P.C., we can help you understand how an expected or existing inheritance may affect your bankruptcy case, evaluate your options, and take appropriate steps to address inherited assets. We also provide estate planning services to help ensure your financial and family goals are considered. Contact us today to get legal guidance tailored to your needs.