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Keeping Inheritances In Bankruptcy

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As a general rule, property that you own before you file for bankruptcy needs to be protected in order for you to keep it. But any property that you get or earn after your bankruptcy discharge is yours. The bankruptcy court can’t “reach out” after the case is closed and over and take property that you legitimately didn’t have when you filed, but which you acquired after you filed for bankruptcy.

Inheritances

But there is one exception to this rule: inheritances. This may seem unfair. First, if you’re getting an inheritance, it’s likely because a friend or loved one passed away—the last thing you need is your old bankruptcy case now saying that the property left to you by a loved one needs to be surrendered.

There is a unique and complex bankruptcy rule when it comes to inheritances, called the 180 day rule. Here’s how it works.

Any property that you are entitled to receive when someone dies within 180 days of filing your must be turned over to the bankruptcy trustee–even if the case is long closed and you have already received your discharge. Note that this is 180 days from the day you filed your case—not from your discharge or the day your bankruptcy case was closed.

Also note that the inheritance doesn’t have to be received within 180 days—you merely have to have the entitlement to receive an inheritance. This usually means when the loved one dies who has left something to you in their estate documents.

Amending estate documents can create problems as well. If, when you file for bankruptcy, you aren’t entitled to any inheritance from anyone, and then estate documents are amended to include you in the distribution, if that person passes away within 180 days of your filing it could cause problems with the bankruptcy.

Planning Your Bankruptcy Properly

This sounds very grim, but it is a reality of bankruptcy—if you have a loved one that is sick, infirm, or who does not have long to live, and you anticipate a meaningful inheritance, you may want to wait to file for bankruptcy so as to avoid the risk of them passing away within the 180 day window.

The opposite is true as well—if you have elderly family, but they are healthy, you may want to file now, to ensure that your bankruptcy goes through and 180 days are likely to pass while your relatives are still healthy and vigorous.

Exempting Inheritances

You certainly can exempt an inheritance, but there is no overall “inheritance exemption.” That means you’ll have to fit your inheritance into existing exemptions, which may be hard to do, given that most inheritances are much larger than any given exemption.

Note that you can keep an inheritance if you file for Chapter 13 bankruptcy. But depending on the amount of the inheritance, it could increase your Chapter 13 payments dramatically.

Call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850 for help with your bankruptcy case, and to see how your situation works with bankruptcy laws.

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