Bankruptcy and Inheritances
Receiving an inheritance can make a world of difference in your financial situation, especially if you are struggling to pay your bills each month; but if it comes in the middle of a bankruptcy proceeding, things could get a little complicated. Bankruptcy laws are complex, and receiving an inheritance will likely play a part in your bankruptcy filing depending on when you receive your unexpected windfall.
If you file bankruptcy and receive an inheritance while your bankruptcy proceedings are ongoing, the inheritance will immediately become part of your case and it could be used to pay back your creditors. If you are expecting an inheritance, tell your bankruptcy trustee during your 341 meeting, held between you and your attorney and a bankruptcy trustee. The meeting is scheduled to determine your ability to pay back your creditors, and an inheritance will certainly make a difference in that regard.
All in the Timing
You may think that you are off the hook if your bankruptcy filing has been closed and you receive a sudden inheritance afterwards. You could, however, be wrong. If your inheritance comes within 180 days after your bankruptcy case has been discharged, you are required to report that inheritance, whether it is money, real estate, jewelry, or other property to your bankruptcy trustee. The rule was put into place to prevent those in debt from filing bankruptcy in anticipation of an inheritance.
If it takes a few months before you actually receive your inheritance, the eligibility date is the one used by the court. That means if the person who left you the inheritance passed away on Jan. 1, 2019, but you did not receive your inheritance until a year later, Jan. 1, 2019, is the date that will be used by the court.
There are some ways that you can protect your inheritance, however, despite filing for bankruptcy. For example, if you receive a home as part of your inheritance and you move in, you can protect the property by making it your homestead, which is exempt under bankruptcy laws. Vehicles of a certain value and jewelry also fall under this category.
If you inherit assets that exceed the exemption amount, you could be forced to liquidate in order to pay back your creditors.
What if my spouse receives an inheritance?
If you are filing bankruptcy on your own and your spouse receives an inheritance, that property cannot become part of your bankruptcy estate. If you are filing jointly, however, that money can be used to pay back creditors, or property can be sold to pay back creditors.
An attorney can help determine how an inheritance may impact your bankruptcy
Because of the complexities associated with receiving an inheritance either during bankruptcy proceedings or within six months after your case has been discharged, an experienced bankruptcy attorney is an important asset in helping you determine how you can protect your property, or how that property will impact your case. For more information, contact Maxwell Dunn’s team at 248-246-1166.