Bankruptcy and Your Inheritance
If you are overwhelmed by debt from your creditors, you may be considering filing for bankruptcy. For most people, there are two options to file for bankruptcy, Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy will allow you to discharge most of your debt, and a Chapter 13 bankruptcy will allow you to restructure your debt and repay it over a longer period of time. If you are expecting an inheritance or another type of monetary windfall, you will face some additional challenges with respect to bankruptcy.
If you decide to file for bankruptcy, the next 180 days (6 months) become important. If you receive any kind of monetary inheritance or other large influx of income, such as an inheritance, it may affect and impact your bankruptcy proceeding. The inheritance you receive will automatically become part of the bankruptcy estate and can be used to pay your debts listed in your bankruptcy. It is important to note that if your loved one passes away during the 180 days, whatever you are entitled to from their estate will become part of your bankruptcy even if you have not actually received the money from the inheritance, rather just that you are entitled to that property or income. If your inheritance comes 181 days or more after your filing for bankruptcy, it will not be considered as part of your bankruptcy proceeding or any calculations.
Notify the Bankruptcy Trustee
A bankruptcy trustee will be assigned to your case when you file for Chapter 7 or Chapter 13 bankruptcy. If a loved one of your passes away within 180 days of you filing for bankruptcy, you have a legal obligation to notify your bankruptcy trustee. Even if you fear that your inheritance will be used to pay your creditors, you must inform your bankruptcy trustee of the monetary windfall. Additionally, if you receive an inheritance within 180 days of filing for bankruptcy, you will likely need to amend some of your bankruptcy forms and detail whether the assets you inherited were property, land, a home, or money.
Whether or not you are allowed to keep a part of your inheritance will depend if any of the money or property you received were considered part of an exemption. There are certain types of property received in an inheritance that you are allowed to keep even if you have filed for bankruptcy. Visiting with an experienced bankruptcy attorney can help you determine which types of property you may be able to retain even if you are filing for bankruptcy. If your inheritance is not covered by an exemption, your inheritance assets will be used to pay off your creditors in a Chapter 7 bankruptcy, or used towards the calculations of your debt restructuring payments in a Chapter 13 bankruptcy.
Spouse Receives Inheritance
If your spouse receives an inheritance, it will only be considered as part of your assets for bankruptcy purposes if you filed jointly with your spouse. If you filed for either type of bankruptcy as an individual, your spouse’s inheritance is not considered part of your assets unless you comingle the inheritance with your marital assets. To keep it separate, your spouse should keep the inheritance completely separate from marital assets.
Reach Out to Us Today for Help
If you have received an inheritance and are considering bankruptcy, there are specific legal challenges you may face. Contact our experienced West Palm Beach bankruptcy attorneys today at Kelley, Fulton & Kaplan at 561-264-6850 for a free consultation.