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If you have filed for bankruptcy, and received an inheritance shortly after, you might wonder whether or not you have the right to keep any of it. As a bankruptcy lawyer might explain to you, the answer largely depends on many factors. For example:
- When did you inherit the assets or property?
- Does the inheritance qualify for exemptions?
- Which chapter of bankruptcy did you file for?
- Was the bankruptcy held in a trust?
Although it is unusual to receive an inheritance during a bankruptcy filing, it is certainly possible. If you are in this situation, you should work with a knowledgeable bankruptcy lawyer to ensure there are no interruptions in your case.
Understanding the 180 Day Rule
Under the Bankruptcy Code exists a 180 Day Rule. This basically says that if you receive an inheritance within 180 days of filing for bankruptcy, the court can take some of the inheritance, if not all of it. If the inheritance came through after 180 days, you may be able to keep all of it; however, this will depend on the chapter you filed. Keep in mind that the 180 day rule is the date in which the decedent died. In other words, it doesn’t matter if you received the inheritance 3 years later. The court only looks at the date of death. So you cannot wait for a while to collect your inheritance as a means of ensuring you get to keep everything.
What If I Filed for Chapter 7?
When filing for Chapter 7, your case will have a trustee who is responsible for liquidating some or all of your assets. The money from the liquidation will be used to pay off your debts. Some of the debt will be discharged. Once complete, you will be debt-free or as close to it as possible.
It should be understood that not all of your assets are liquidated in Chapter 7. There are exemptions that apply to your car, home, essential items, and so forth. Unfortunately, the exemptions don’t apply to an inheritance. Therefore, it goes back to the 180 day rule. If you inherited assets by a person who died within 180 days of filing for bankruptcy, you may lose some or all of your inheritance. If any of the inheritance itself is considered exempt, you may be able to keep it. A bankruptcy lawyer can review the inheritance and related details to help you understand what is applicable to your own situation.
What if I Filed for Chapter 13?
Chapter 13 involves the creation of a repayment plan that is approved by the court. You will then have to pay on this plan for 3-5 years. With Chapter 13, you can often keep most of your assets. What you will pay depends on the value of any non-exempt property. Therefore, if your inheritance is non-exempt, the value of your property can go up which will increase the amount you are obligated to pay.
Hiding Anything is Not Recommended
It can be upsetting to find out the court can take away anything you inherit. However, you must be honest with the court. Your trustee will carefully review your case and question anything that looks out of the ordinary. If it is found that you tried to hide an inheritance, you could face penalties or charges of fraud.
Realistically, if you are inheriting something, and you have filed for bankruptcy, you should call a lawyer, like a bankruptcy lawyer from The Law Offices of Ronald I. Chorches.