Your Inheritance and Bankruptcy: What You Need to Know

If you are overwhelmed by debt, bankruptcy may be a viable option to help you regain your financial independence. When you file for Chapter 7 or Chapter 13 bankruptcy, you can potentially leave most of your debt behind and start over fresh. Unfortunately, bankruptcy is a complex process and does not come without its consequences. One question you may have is what to do with your inheritance. If you expect an inheritance or have received one, and you plan to file for bankruptcy, you need to know how your inheritance is impacted once you file. Here are some things you should know.
Your Inheritance and the 180-Day Rule After you file for bankruptcy, the following 180 days are important. During this time, any income you receive becomes part of your bankruptcy filing. This includes your inheritance, whether the inheritance consists of money, property, pensions, and the like. Many factors will determine what happens to your inheritance at this point.
Your Inheritance After 180 Days If you receive your inheritance after the 180-day period after you file for bankruptcy, your inheritance is not part of your bankruptcy estate. If you file for Chapter 7 bankruptcy, you can keep your inheritance instead of debt repayment. If you file for Chapter 13 bankruptcy, your inheritance may be used to calculate your repayment plan under a debt restructuring. Only an exempt inheritance is not a form of income to help pay your debt.
Your Inheritance and Your Bankruptcy Trustee When you file for bankruptcy and you receive your inheritance within the 180-day period, you have to tell your bankruptcy trustee, no matter if you fear the loss of your inheritance to your debt repayment. Be sure to speak to your bankruptcy attorney as to when and how to notify your bankruptcy trustee. When you receive an inheritance within the 180-day timeframe, you have to amend some of your bankruptcy documents. The documents will depend on the type of asset you received as part of your inheritance.
Your Inheritance as Part of Your Bankruptcy Estate Whether or not you can retain your inheritance will depend on if some or all of the inheritance is exempt. Exemptions are amounts and types of property you may retain in a bankruptcy. In Georgia, for instance, you can retain $21,500 in personal property or real estate. This includes any domicile you and your dependents use as your primary residence. You can retain up to $43,000 of the value if you are married and only one spouse owns the property. You can use up to $10,000 of any unused homestead exemption to protect your other property. You cannot use any federal exemptions in a Georgia bankruptcy. You should speak with your attorney to determine what, if any, exemptions for which you qualify. If you do not qualify for any exemptions, your inheritance will go toward the liquidation of your assets to help pay your debtors in your Chapter 7 bankruptcy. The inheritance is used to help calculate your payment plan if you file a Chapter 13 bankruptcy.
Your Spouse's Inheritance If your spouse receives an inheritance, what happens to it depends on how you file for bankruptcy, either individually or together. If you file for bankruptcy individually, your spouse's inheritance is not an automatic part of your bankruptcy. The only time his or her inheritance comes into play is if you begin to include parts of the inheritance within your assets as a married couple. You can protect the inheritance is safe as long as the assets are separate from your marital assets. If you file for bankruptcy together, the inheritance is part of your bankruptcy filing. You then have to go through the exemption process to determine what happens to your spouse's inheritance. If you have any questions about your bankruptcy, please contact us at Custer, Custer & Clark LLC Attorneys at Law.