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Should You Do Estate Planning During Bankruptcy?
Nov 09, 2021
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Do you plan to file for bankruptcy? If so, you probably have many questions about what you should and shouldn't do during this time. And while some tasks clearly should be done before or after your bankruptcy case is completed, others are more complex.
One such task is estate planning. How does your bankruptcy affect your estate plan and vice versa? To help you protect yourself as fully as possible, here are answers to a few common questions on the subject.
Should You Start Estate Planning Now? If you don't have an estate plan in place, now is always the time to get started. Anything can happen to anyone at any time, and an estate plan protects both your loved ones and yourself no matter what happens with your debt. In particular, documents that detail who you would like to make decisions for you in case of incapacitation will not be affected by your bankruptcy, so these can be done at any time.
Keep in mind that you can alter your estate plan after you exit bankruptcy, so you don't need to worry if your financial situation changes. And much of the information you need for your bankruptcy case is also information that helps with estate planning. Therefore, this may be a very good time to save money and effort by handling both financial matters.
How Does Debt Affect Your Estate? The biggest question many have about estate planning with debt is how those debts affect your estate. In general, your creditors are notified when you pass away so that they may submit a claim to the probate court to have their debt settled from your estate. Legitimate debts must be paid in full before the remainder of your assets are distributed per your estate terms.
If you are declaring bankruptcy because your debts outweigh your assets, creditors will be paid in an impartial manner as much as possible and nothing may be left for heirs. Debts that were your responsibility alone will likely be discharged if the estate cannot pay them. If you have any joint debtors, they may be liable for the unpaid portion.
What Happens if You Die During Bankruptcy? If you pass away while in active bankruptcy, the process of liquidation under Chapter 7 will likely continue much as it would otherwise. The bankruptcy trustee and estate executor will work together during this process.
However, if you have filed Chapter 13, or repayment, bankruptcy, the trustee has options. They may ask to dismiss the case and allow the estate liquidation to move forward. Alternatively, they may seek a conversion to liquidation (Chapter 7) bankruptcy. Finally, they may ask the court to permit the bankruptcy payments to continue from your estate.
Does Bankruptcy Benefit Your Estate Plan? Entering bankruptcy can have some positive effects on your estate plan. First, it may allow your estate to benefit from the bankruptcy exemptions in place. If potentially exempt assets would otherwise have been liquidated to pay debts of the estate, they may be better protected by liquidation through bankruptcy. Second, if the bankruptcy case is completed before (or possibly after) you pass away, discharged debts remain discharged. Creditors won't have a right to payment through the estate. This will protect your remaining assets and heirs.
Finally, wiping out debts now makes your estate plan easier in the long run. Your executor will have less work and distribution will be timelier and simpler. If you craft an estate plan with your bankruptcy end result in mind you may not even need to alter it once you exit bankruptcy.
Want to know more about estate planning before, during, or after bankruptcy? Start by meeting with Custer Custer & Clark LLC . We will help you find the answers you need to start getting the protection you need both now and in the future. Call today to make an appointment.
One such task is estate planning. How does your bankruptcy affect your estate plan and vice versa? To help you protect yourself as fully as possible, here are answers to a few common questions on the subject.
Should You Start Estate Planning Now? If you don't have an estate plan in place, now is always the time to get started. Anything can happen to anyone at any time, and an estate plan protects both your loved ones and yourself no matter what happens with your debt. In particular, documents that detail who you would like to make decisions for you in case of incapacitation will not be affected by your bankruptcy, so these can be done at any time.
Keep in mind that you can alter your estate plan after you exit bankruptcy, so you don't need to worry if your financial situation changes. And much of the information you need for your bankruptcy case is also information that helps with estate planning. Therefore, this may be a very good time to save money and effort by handling both financial matters.
How Does Debt Affect Your Estate? The biggest question many have about estate planning with debt is how those debts affect your estate. In general, your creditors are notified when you pass away so that they may submit a claim to the probate court to have their debt settled from your estate. Legitimate debts must be paid in full before the remainder of your assets are distributed per your estate terms.
If you are declaring bankruptcy because your debts outweigh your assets, creditors will be paid in an impartial manner as much as possible and nothing may be left for heirs. Debts that were your responsibility alone will likely be discharged if the estate cannot pay them. If you have any joint debtors, they may be liable for the unpaid portion.
What Happens if You Die During Bankruptcy? If you pass away while in active bankruptcy, the process of liquidation under Chapter 7 will likely continue much as it would otherwise. The bankruptcy trustee and estate executor will work together during this process.
However, if you have filed Chapter 13, or repayment, bankruptcy, the trustee has options. They may ask to dismiss the case and allow the estate liquidation to move forward. Alternatively, they may seek a conversion to liquidation (Chapter 7) bankruptcy. Finally, they may ask the court to permit the bankruptcy payments to continue from your estate.
Does Bankruptcy Benefit Your Estate Plan? Entering bankruptcy can have some positive effects on your estate plan. First, it may allow your estate to benefit from the bankruptcy exemptions in place. If potentially exempt assets would otherwise have been liquidated to pay debts of the estate, they may be better protected by liquidation through bankruptcy. Second, if the bankruptcy case is completed before (or possibly after) you pass away, discharged debts remain discharged. Creditors won't have a right to payment through the estate. This will protect your remaining assets and heirs.
Finally, wiping out debts now makes your estate plan easier in the long run. Your executor will have less work and distribution will be timelier and simpler. If you craft an estate plan with your bankruptcy end result in mind you may not even need to alter it once you exit bankruptcy.
Want to know more about estate planning before, during, or after bankruptcy? Start by meeting with Custer Custer & Clark LLC . We will help you find the answers you need to start getting the protection you need both now and in the future. Call today to make an appointment.
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