We’ve spoken about marriage and bankruptcy.
Now it’s time to speak about death and bankruptcy. Not your own death, but the death of a loved one, which leaves you with an inheritance.
We always ask our clients contemplating bankruptcy whether they foresee a loved one dying in the near future. We don’t mean to sound morbid, but we want to protect our clients and we need this information.
Because if you receive an inheritance within 180 days of your bankruptcy filing, that inheritance will become property of your bankruptcy estate. You’ll have to notify the bankruptcy court and the bankruptcy trustee that you’ve received an inheritance, and you’ll have to amend the paperwork you filed with the court to disclose the inheritance. Worse, the majority of that inheritance money will be used to pay your creditors.
In reality, you may not receive anything from your inheritance for months. Maybe even years. But that doesn’t matter. The key date is when your loved one passed away. What will likely happen is that the bankruptcy trustee will contact the other beneficiaries of your loved one’s will to request that they buy out your interest in the inheritance. The amount they buy your interest for will be used to pay your creditors.
If your loved one passed away after the 180-day period, you’ll be able to keep your inheritance in a Chapter 7 case. But this may not be the case in a Chapter 13 bankruptcy. The bankruptcy trustee may use your inheritance to demonstrate that you should make more payments to your creditors.
Why specifically 180 days? Congress wanted to discourage people who knew they were about to receive inheritances from filing for bankruptcy in order to make sure their creditors couldn’t touch the inheritance. But Congress reasoned that no one could really know if a loved one was going to die beyond six months.
There are ways to protect your inheritance. Have a frank discussion with your loved ones, and suggest that they create a “spendthrift trust” for you, instead of leaving you property in a will. This trust will give you use of the property, but the property will be beyond the reach of your creditors.
Don’t be scared to have this discussion. Remember, your loved one intends to leave money or property for you. They wouldn’t want to see your inheritance being used to pay your creditors any more than you do.
For a free consultation or if you need any assistance from Las Vegas Bankruptcy Attorneys, or have questions about Las Vegas Chapter 7 Bankruptcy, or Las Vegas Chapter 13 Bankruptcy, or Las Vegas Debt Settlement, please call the offices of Freedom Law Firm at 702-903-1208 today.