How Bankruptcy Affects Inherited Assets
Many people experiencing overwhelming financial difficulty wrestle with the decision of whether to file bankruptcy. The situation can become even more complex when people believe they will be getting an inheritance in the near future. People in California and across the U.S. should know how Chapter 7 bankruptcy treats inherited assets.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is primarily used to discharge certain debts and can even be used to protect property from creditors. The bankruptcy discharge eliminates the personal obligation to pay many debts, and exemptions in Chapter 7 bankruptcy allow a filer to keep some or all property. There are exemptions for different kinds of property including houses, vehicles, retirement savings, insurance policies, household goods and other personal property necessary for employment or daily living.
Most people do not lose any property when they file a Chapter 7 bankruptcy. The Chapter 7 exemptions in California are very liberal and allow most people to retain all of their property. An accurate determination of whether anyone will lose some of his or her property can be made prior to the filing of a bankruptcy. In the event a filer has unexempt/unprotected property he or she may be required to surrender it to pay creditors.
Inheritance Time Limitations
Part of the requirements for filing bankruptcy include disclosing all the assets a filer has so the court knows what is potentially available to repay creditors. In some cases, such as when people inherit after filing bankruptcy, the filer needs to amend the list of assets.
The law puts a limit on how long after a person files bankruptcy an inheritance is considered part of the bankruptcy estate. If a person inherits prior to, or within 180 days after, filing for bankruptcy, then the trustee may use those inherited assets to pay off the person’s creditors.
Because estates can vary in the time they take to go through probate, the court begins counting the 180-day period from the time the grantor dies, rather than when the filer received the inheritance. Even if a person does not receive an inheritance for a year or more after filing bankruptcy, if the grantor died within six months of the bankruptcy filing, the filer would have to inform the court of the inheritance and possibly use it to repay creditors.
It is important to note not all inherited assets are subject to becoming part of the bankruptcy estate. For example, IRAs and other retirement accounts are excluded in some cases.
Talk To A Lawyer
Deciding whether to file bankruptcy when there is the possibility of inheriting assets within the next six months can be difficult. If you are facing such a decision, consult with a seasoned bankruptcy attorney who can discuss your situation with you and advise you of your options.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.