Many of you who are needing to file bankruptcy sometimes come into a small financial windfall in the form of an inheritance. What are your options on inheritance before filing bankruptcy?
To help you understand your options if you suddenly come into an inheritance and are considering bankruptcy, lets assume you shared an inheritance with siblings after one of your parents suddenly passed away.
Let us assume you live in Texas, you have not yet filed for bankruptcy, you just got a new job for the first time in three years, you owe a credit union money for an unsecured loan of $7,500, you owe over $75,000 in credit card debt, a collection agency is currently threatening a lawsuit against you, you have student loan payments due that are incurring interest, and you have back taxes due. Your inheritance will be around $25,000 for your share. What are your bankruptcy options to protect yourself?
Option number one is to hold off on filing bankruptcy until the inheritance is settled. The bankruptcy code prevents you from giving preferential treatment to creditors up to twelve months before you file for bankruptcy protection. Bankruptcy court trustees pay particular attention to preferential insider treatment like paying off the debt of a family member, but here are some options for using the inheritance money during the time before filing for bankruptcy:
You might use the money to pay off debt that is exempt from discharge in a bankruptcy. Under the illustrated assumptions made, you might use the inheritance money to pay off your student loans and/or back tax burdens. This may be done if your filing either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.
If you want to keep some of the money for yourself, you may be able to dump some of the money in an eligible Individual Retirement Account (IRA).
If most of the inheritance is coming from the sale of the home of the deceased, you may rent the home from your siblings using the Texas homestead exemption for your percent of ownership. After the bankruptcy is closed, you can sell the home and keep the proceeds.
If willing, your siblings could buy out your share of the inheritance before you file bankruptcy and before the estate of the deceased is settled. The bankruptcy court trustee would most likely give you the the option of buying back your part of the home received in an inheritance anyway if the home becomes a part of the bankruptcy estate.
The second option is to go ahead and file for bankruptcy protection realizing some inheritance estates take years to settle. Regardless of how long it takes the administrator to distribute the assets from the estate of the deceased, your right to any future distribution is a part of the bankruptcy estate. If the asset is not exempted, it is subject to liquidation by the trustee in a Chapter 7 bankruptcy, and he may wait on a settlement of an inheritance as long as it takes.
Theses are just a few of the options you might consider when dealing with bankruptcy and inheritance. If you have inheritance and bankruptcy issues, it may be wise to consider consulting with a bankruptcy lawyer. Let us help you find a bankruptcy attorney in your area of Texas that will answer you questions about bankruptcy laws.