Deciding to file for bankruptcy is a tough decision. When you are overwhelmed by debt, it can be the right thing to do. Filing for Chapter 7 or Chapter 13 bankruptcy can help you get out from under your debt and move forward on more stable financial ground. However, bankruptcy is not an easy process. It has serious consequences, including using various sources of income to pay off as much of your debt as possible.
If you are expecting an inheritance or recently received money or property after a loved one’s passing, you need to talk with an attorney about bankruptcy and inheritance. Our experienced Cleveland bankruptcy lawyers at Cleveland Bankruptcy Attorneys will talk with you about whether you can keep your inheritance or whether it will be used during the bankruptcy.
The 180-Day Rule in Bankruptcy
Once you file for bankruptcy, the next 180 days matter a great deal. Within that time period, the income you receive becomes part of the bankruptcy estate, including an inheritance. As part of the bankruptcy estate, what happens to the inheritance depends various factors.
Any inheritance you actually receive within that 180 days becomes part of the bankruptcy estate.
Also, if your loved one passes away during this time, whatever you are entitled to upon their death becomes part of the bankruptcy estate. That might mean the individual’s Will entitles to certain money or property. Or, if your relative died without a Will, Ohio’s intestacy laws may provide for you to receive a portion of their estate.
It does not matter when you may actually receive your inheritance. It only matters that during the 180-day period, you became entitled to certain property.
You Must Notify the Bankruptcy Trustee of the Inheritance
If you file for Chapter 7 or 13 bankruptcy and within 180 days, a loved one passes away leaving you money or property, you must tell the bankruptcy trustee. You cannot keep the information to yourself, even if you fear the inheritance will be taken and used to pay your creditors.
You should talk with an experienced bankruptcy lawyer about how and when to notify the bankruptcy court. If an inheritance is received within 180 days of filing, you must amend certain bankruptcy forms. Which forms depends on the type of asset you inherited, such as whether it was money, personal property, land, or a house.
What Happens When Your Inheritance is Part of the Bankruptcy Estate?
If Chapter 7 and Chapter 13 bankruptcies, whether or not you can keep an inheritance that is part of the bankruptcy estate depends on whether the money and/or property are covered by an exemption.
Exemptions are types and amounts of property you can keep during a bankruptcy. In Ohio, you may retain up to a certain value of home equity, cash, a vehicle, household items, jewelry, equipment and tools, and up to $1,250 worth of any other property. You should talk with an experienced bankruptcy lawyer about what property is exempt under federal or Ohio law during your bankruptcy.
If your inheritance is not exempt, then it will go toward the liquidation of certain assets to pay off your creditors under Chapter 7 or toward the calculation used to determine a payment plan under Chapter 13.
If You Receive Your Inheritance 181 Days After Filing
If your loved one passes away or you receive your inheritance 181 days or more after you filed for bankruptcy, then your inheritance does not become part of the bankruptcy estate.
In a Chapter 7 bankruptcy, your inheritance is yours to keep. It will not be used to pay off your creditors.
In a Chapter 13 bankruptcy, it may still be used in calculating your three- or five-year payment plan. Unless your inheritance is exempt, your bankruptcy trustee will count it as income and use it to determine how much you must pay toward your debt each month.
What if Your Spouse Receives an Inheritance?
If it is your spouse receiving an inheritance and not you, then what happens depends on whether you file bankruptcy together or you filed individually.
If you filed for bankruptcy alone, then your spouse’s inheritance is not automatically part of the bankruptcy estate. It only becomes part of the estate if you two comingle the inheritance with your marital assets. To protect the inheritance, your spouse should keep it separate.
If you filed for bankruptcy together, then the inheritance will become part of the estate. Then what happens to it depends on whether it fits into an exemption or not.
Talk with us About Bankruptcy and Your Inheritance Today
If you are contemplating filing for bankruptcy or have already done so, and now you have questions about an inheritance, we recommend calling our Cleveland Bankruptcy Attorneys at Cleveland Bankruptcy Attorneys at (216) 586-6600. We are here to answer all of your questions and guide you through the bankruptcy process.