Bankruptcy courts are courts of equity. This means that the courts are trying to balance a Debtor receiving a discharge with trying to gather some funds for creditors to share. Timing is everything when it comes to keeping an inheritance while filing for bankruptcy. If you’re due to receive an inheritance – or if you have already received one – you may be wondering if it will stay safe during your bankruptcy or if you’ll lose it in the process. Here’s how a bankruptcy can affect your inheritance.
Am I Going to Lose My Inheritance in Bankruptcy?
Even though every person’s financial circumstances are unique, generally speaking, it’s possible to lose an inheritance during bankruptcy unless it is protected by a state or federal exemption. If you have already inherited money or property before filing a bankruptcy, the assets that you hold can have a direct effect on a bankruptcy. If you become eligible to receive an inheritance within 180 days after filing, in most cases, it can be seized by a trustee and used to pay your creditors. The timing is based on the date of death of the person leaving you the inheritance, so it doesn’t matter if you have actually received the inheritance or not. In addition, if you inherit a house or other personal property, its value may determine what you must pay back to your creditors.
Is Chapter 13 Different From Chapter 7 With an Inheritance?
It does make a difference whether you are filing under Chapter 13 or Chapter 7 bankruptcy. After the 180-day post-filing mark, the bankruptcy trustee isn’t generally permitted to take your inheritance in Chapter 7 bankruptcy. But, in a Chapter 13, your inheritance may have an effect on what you have to pay back to creditors via your reorganization plan. All cases are different, so an experienced bankruptcy attorney can help advise you as to your particular situation.
Is There Any Way to Avoid Losing My Inheritance?
You can protect your inheritance by using a bankruptcy exemption that either protects inheritances specifically. This is most notable with regards to inheritances between spouses. Talk to your bankruptcy attorney about the options. Another possible way to avoid losing an inheritance is to receive it as a revocable living trust. Seek legal advice before going this route.
What If I Don’t Report the Inheritance to the Bankruptcy Trustee?
If you receive an inheritance before, during or after you declare bankruptcy, don’t be tempted to hide it from the bankruptcy trustee. This could be considered bankruptcy fraud, which is a reason for your discharge in bankruptcy to be denied. It can even result in federal criminal fraud charges and jail time. Instead, consult with an experienced bankruptcy attorney who can advise you on the best path forward.
Sawin & Shea – Indianapolis Bankruptcy Attorneys
Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of the overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process. Please do not hesitate to call us today at 317-759-1483 for a free consultation. We are ready to help.