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Does An Inheritance Affect My Bankruptcy?

If you file bankruptcy then, some time before your discharge, receive a significant inheritance, what is the overall effect on your bankruptcy filing? Can inheritance be protected through bankruptcy to keep creditors from taking your windfall? The experienced bankruptcy attorneys at the Oswalt Law Group in Phoenix have the answers.

The 180-Day Rule

If you inherit money or property within 180 days of filing bankruptcy, the assets become part of your bankruptcy estate unless they are protected by exemption. Depending on whether you file a Chapter 7 or Chapter 13 bankruptcy, this can mean a major difference in the amount you must pay your creditors. Chapter 13 filers can also have an inheritance absorbed into the bankruptcy estate even after the 180-day limit if the assets would make a difference in how the repayment plan is structured. After 180 days, Chapter 7 filers can avoid the consequences of an inheritance; the judge cannot order the assets to be made part of the estate. Here are some examples of this rule in action:

  • A man files Chapter 7 bankruptcy then inherits $50,000 three months after he files. This money can be seized by the bankruptcy court to pay his creditors, both secured and unsecured.
  • A man files Chapter 7 bankruptcy and inherits a home from his mother when she dies 90 days after he files. The equity in this home can now be protected under the state’s exemption laws by amending the bankruptcy filing.
  • A man files for Chapter 13 bankruptcy and owes $10,000 on his vehicle. He plans to pay the $10,000 as part of his plan. He inherits a new vehicle and decides to let the other vehicle go back to the creditor. The equity in the new vehicle can still be used to pay the residual balance owed on the old vehicle after it is repossessed and sold.

The Spousal Rule

If your non-filing spouse inherits property while you are filing bankruptcy, that property cannot be made part of your bankruptcy estate unless you co-mingle your assets. In other words, a spousal inheritance must not be used to pay any marital debt or purchase any marital property, or it can be included in the bankruptcy estate. For more information on the complicated rules surrounding bankruptcy and inheritance, contact the attorneys at the Oswalt Law Group in Phoenix. These attorney can help you understand your rights and responsibilities under bankruptcy law.

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