Since the bankruptcy code changed in 2005, Chapter 7 and Chapter 13 bankruptcy have taken on new complexities of their own. From the means test to the credit counseling and financial management courses required to file for bankruptcy now it's become obvious of the importance of having a bankruptcy attorney to represent the debtor. One thing is for sure, with the current economic conditions the number of those filing for bankruptcy is not going to drop anytime soon.
When filing bankruptcy there are many overlooked components of the law. One of those overlooked components is inheritance. Is the debtor entitled to their inheritance before, while and after filing for bankruptcy? If the debtor is not careful, their inheritance could fall into the hands of the bankruptcy trustee to be dispersed as payment to the debtor's creditors. This is another reason why the timing of a bankruptcy filing and having a bankruptcy attorney to choreograph the filing is of utmost importance.
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According to the bankruptcy code, under 11 USC 541(a)(5) states basically, if the debtor acquires or becomes entitled to receive any property through inheritance or as a beneficiary of a life insurance policy or property settlement within 180 days after filing for bankruptcy, at that time the property will become property of the bankruptcy estate. This basically means if the debtor entered into a Chapter 7 bankruptcy filing on September 1, 2011 and their grandma died on December 1, 2011 leaving a will to the debtor and the amount of $100,000, the bankruptcy trustee could claim this money to pay back creditors. In this case, it might be a good idea to hold off on filing bankruptcy if the debtor has the possibility of being in a will of a relative and that person is on their last leg. It sounds cold, but I don't think grandma had the idea of giving the inheritance to a bunch of creditors. If timed properly, it could be a huge shot in the arm for the debtor after filing bankruptcy.
When it comes to Chapter 13 bankruptcy things are a lot different. The problem with Chapter 13 is the typical case will continue on for 3 to 5 years. This will become a problem if the debtor gets an inheritance in any part of that time frame. If the debtor receives an inheritance during the repayment plan, the bankruptcy trustee will ask for the money to be turned over to become part of the bankruptcy estate. Depending on the amount of money, this can change the entire bankruptcy filing.
When filing bankruptcy, a debtor should be aware of what's going on in their lives and discuss this with the bankruptcy attorney to try and avoid the loss of an inheritance. If the debtor has elderly parents or is likely to inherit property from someone this should be immediately discussed with a bankruptcy attorney to come up with a plan and try and protect as much property as possible.
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