Individuals who receive an inheritance after bankruptcy may see that inheritance considered as part of the bankruptcy estate depending on when the inheritance is received and the type of bankruptcy case being pursued, e.g. Chapter 7 or Chapter 13.
Obviously, it can be very difficult to plan a bankruptcy case around when an inheritance will be received, as many inheritances are received unexpectedly when a loved one passes away. Still, others who are aware of a family member’s ill health may bring up the question of inheritance after bankruptcy when consulting Dallas bankruptcy lawyers about their case.
Before exploring the rules regarding inheritance after bankruptcy, though, it makes sense to review:
- the basics of bankruptcy in Texas;
- its purpose; and
- what people filing can expect from the process.
Basics of Bankruptcy in Texas
Bankruptcy is a federal legal process that helps relieve people of the burden of excessive unmanageable debt. The process involves a plan that protects the person from being pursued by creditors and establishes a plan for repaying the debts, or part of the debt.
There are two basic types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcies are known as liquidation bankruptcies because the person’s property can be sold and the money used to repay the debts. The process of bankruptcy in Texas allows individuals to choose between federal or state property exemption rules, which individuals may discuss with Dallas bankruptcy lawyers.
Chapter 13 is a reorganization-type bankruptcy, which allows the individual to keep all or most property as long as he or she accepts a plan for paying off debts, or part of his or her debts, within a specified time frame (usually three to five years).
The person filing for either type of bankruptcy in Texas is assigned a bankruptcy trustee. A trustee is someone who represents the interests of the creditors, and is in charge of making sure that the assets are handled in the most efficient way possible. This is either through liquidation or reorganization.
While bankruptcy isn’t for everyone, many people find that it can help them make a fresh start and avoid constant harassing calls from collections agencies. Before deciding on bankruptcy, it’s wise to consult a financial professional and/or legal professional like Dallas bankruptcy lawyers who can answer your questions about how bankruptcy might affect various aspects of your life, including inheritance after the bankruptcy.
The 180-Day Rule Dictating Inheritance after Bankruptcy
In a bankruptcy, an inheritance is seen as any other asset, and so it is handled however the specific type of bankruptcy deals with assets.
For example, in Chapter 7 bankruptcy, all non-exempt assets are liquidated to pay your debts, so an inheritance received within 180 days of filing for this type of bankruptcy will be considered property of your bankruptcy estate. You bankruptcy trustee would see that it is distributed among your creditors to satisfy your debts.
In a Chapter 13 bankruptcy, your inheritance is treated differently because assets aren’t to be liquidated. Instead, your bankruptcy trustee will decide how best to utilize any inheritance you receive within 180 days of filing. Usually, when you receive an inheritance during this time period, it will affect your debt repayment plan, making your payments higher.
By law, you need to report to the courts any inheritance received within 180 days of filing for bankruptcy. Inheritance received after the 180 day period does not need to be reported.
Assistance from Dallas Bankruptcy Lawyers
If you are facing bankruptcy and are expecting to inherit assets in the near future, it may be wise to consult an attorney. Dallas bankruptcy lawyers can give you guidance during the process and regarding any expected or unexpected inheritance after bankruptcy.