Can You Keep Inheritance Money if You Filed Bankruptcy?
Protecting Your Inheritance In Bankruptcy
The bankruptcy code has specific rules about how an inheritance is treated during bankruptcy. If a debtor inherits money before filing bankruptcy or within 180 days after filing bankruptcy, that money will become part of the bankruptcy estate. This bankruptcy rule applies to all types of assets inherited by the debtor, cash, real estate, stocks, bonds, precious metals or anything else of value.
The 180 Day Rule
The 180 day rule was established to prevent debtors from filing bankruptcy right before the death of a relative from whom they would inherit money. Of course, if they could avoid using their inheritance to pay their debts, using bankruptcy to discharge their debts beforehand might seem like the best move for some debtors. To remove this option of using bankruptcy to protect an imminent inheritance, the 180 day rule was established.
Other Ways to Protect Your Inheritance
But despite the 180 day rule there are other ways to protect your inheritance. Bankruptcy exemptions can be applied in your bankruptcy to protect inherited assets. For example, if you inherited a home and made it your homestead, you might be able to use the homestead exemption to protect the home. This also applies to other asset types, such as jewelry or a vehicle.
The only thing the debtor needs to be concerned about, are assets which exceed the bankruptcy exemption dollar amount. For example, if your inherited asset is worth $5,000 and the bankruptcy exemption is only $2,500, the bankruptcy trustee might demand that the inherited asset be liquidated. If the inherited asset is liquidated the unprotected portion will be distributed to the creditors, while the exempt portion will remain with the debtor. In Chapter 13 bankruptcy , if not protected any inherited money will be used to repay creditors.
If you’re in Chapter 13 bankruptcy and expect to inherit cash, contact us today for a free consultation to ask about how you can maximize your exemptions to protect the inheritance.