So you\’ve found yourself in a position where you\’ve just received an inheritance of one kind or another, but you\’re also in the process of filing for bankruptcy. Obviously having to declare bankruptcy means that your finances are already stretched to breaking point, so the news of an inheritance will be very welcome, or at least it might be, depending on your bankruptcy filing itself.
You see the problem with an inheritance is that it can wind up becoming part of your bankruptcy estate, and be used to pay off your existing debts. Whether or not this bankruptcy \”rule\” applies to you will depend on how long ago the person who gave you your inheritance passed away, and also what type of bankruptcy filing you\’re proceeding with in the first place. There is a very strong possibility that the inheritance you were looking forward to so much could be used to simply pay off your creditors instead and you would not see any proceeds from it.
Chapter 7 Filing
With this type of bankruptcy filing whether or not your inheritance can and will be used to pay off your debts will depend on the 180-day rule. This basically stipulates that if you received your inheritance within 180 days of your bankruptcy filing that it becomes part of your bankruptcy estate, and is then used to pay off your creditors. If, however, your inheritance was received more than 180 days after your bankruptcy filing then it\’s exempt from becoming part of your estate, which basically means you get to keep your inheritance regardless of how much you owe your creditors.
The 180-day rule was brought into law to prevent people who knew they were going to receive a large inheritance in the near future from declaring bankruptcy to free themselves of any existing debts. Obviously if you have access to additional funds as part of your inheritance it makes sense to pay your debts down more quickly and reset your financial standing sooner as a result.
What\’s really important to note here is that the 180-day rule starts from the day the person who gave you the inheritance died, and not the day the will was read, or the day you received the inheritance. You need to be very clear on how this rule works because there are no gray areas in it when it comes to this element of bankruptcy law.
Chapter 13 Filing
When you file for Chapter 13 bankruptcy receiving an inheritance can actually leave you with the unpleasant task of having to repay more money to your creditors than you expected in the first place. In a bankruptcy filing of this type you don\’t have to give up your property, and instead you make monthly payments to your creditors as part of the overall repayment plan. Whether or not your inheritance will make an impact on your Chapter 13 filing will depend on whether it\’s exempt or not, as this type of repayment plan is based on your non-exempt property and nothing else.
There is also the slim possibility that you can have the total amount of your inheritance exempted, but you will need professional legal advice on that matter.
In fact if you\’re about to receive an inheritance of any kind it\’s a good idea to get professional legal advice on it, regardless of whether you have bankruptcy looming on the horizon or not.