It is wonderful to receive an inheritance, but you may not be able to keep it if you have recently filed for bankruptcy. It all depends on factors such as timing, the way the inheritance was created, the exemptions you can claim, and what type of bankruptcy you have filed.
The bankruptcy process is complex, so to increase the chances of keeping assets such as an inheritance, it pays to have the guidance of an experienced Ohio bankruptcy attorney. The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer know a correctly filed bankruptcy can eliminate many debts, provide protections from creditors and give you a fresh financial start. We provide a free consultation to evaluate your individual situation and make sure you avoid costly problems before, during, and after your bankruptcy procedure.
Here is what you should know about keeping an inheritance during bankruptcy.
The 180-Day Rule
The most important factor in determining whether you can keep your inheritance is the 180-day rule. This is a time limit that determines whether the money or property you have inherited becomes part of your bankruptcy estate. If you receive your inheritance within 180 days after you filed, the inheritance becomes the property of the bankruptcy estate. It is also part of the bankruptcy estate if the person who left you the inheritance died within the 180 days after you filed your bankruptcy petition. If the person who left you the inheritance died 181 days or more after you filed, it does not become part of your bankruptcy estate, and you get to keep it.
The 180-day rule goes into effect on the date the person died, as that was the day you became entitled to receive the inheritance. This holds true even if you won’t actually be receiving the inheritance for months or years.
Inheritance Within 180 Days of Filing
If you have a Chapter 7 bankruptcy case, and have received your inheritance within 180 days after filing, the inheritance becomes part of your bankruptcy estate, along with the rest of your property. You may still be able to keep it — if it fits within one of the allowed Ohio exemptions. If it is not exempt, the bankruptcy trustee can take your inheritance and distribute it to your creditors.
If you have a Chapter 13 bankruptcy and have received your inheritance within 180 days of filing, keeping it also depends on whether the property is exempt. In a Chapter 13 case, receiving an inheritance could increase the amount you have to repay to your creditors in your repayment plan. Since in Chapter 13 you don’t have to give up your property but you instead make monthly payments to your creditors, part of the amount you pay depends on your nonexempt property. If you receive an inheritance that isn’t exempt, you will have to add its worth to the amount you repay to your unsecured creditors. If the property is exempt, it will not be added to the repayment amount, so you will not have to pay more. However, if you inherit cash you will need to meet the best efforts test to keep the money. You may file a Motion to Retain the inheritance for specific expenses to keep it from going to your creditors.
You have an obligation to report the inheritance to your bankruptcy trustee for both Chapter 7 and Chapter 13. To determine whether your inheritance is exempt, you must amend the applicable bankruptcy schedule to disclose the asset.
Inheritance After 180 Days
If you have a Chapter 7 bankruptcy, any inheritance you receive after 180 days is yours to keep, whether or not the property is exempt. However, in a Chapter 13 filing, the inheritance may be counted even after the 180 days, just as if your income and assets increase for any other reason during your three- to five-year repayment plan period. This is because, in Chapter 13, the repayment plan remains subject to modifications if your ability to pay increases or decreases.
What If Your Non-Filing Spouse Gets an Inheritance?
If you filed for bankruptcy separately from your spouse and your spouse receives an inheritance, it is not part of your bankruptcy estate, since inherited money is not automatically a marital asset. However, if you comingle the inheritance with your other funds or if your spouse uses it to buy something for you, it may be considered part of your bankruptcy estate.
What Can Help
There are certain things you can do to ensure that your inheritance won’t end up in your bankruptcy estate. These include:
- Having the person you will inherit from put the property in a revocable living trust instead of leaving it to you in a will. Property that is left in a trust is often not considered to be part of a bankruptcy estate.
- Using Exemptions — For a Chapter 7 bankruptcy, there are certain Ohio exemptions of property and assets that the trustee cannot liquidate to pay creditors. If your inheritance consists of exempt assets or if it amounts to less than Ohio’s exemption amounts, you will be able to keep it.
- Disclaiming the Inheritance — If you don’t want your inheritance to go to your creditors, you can disclaim it by filing formal notice with the probate court that you don’t want it. This must be done ahead of filing for bankruptcy.
- Get an Attorney — A knowledgeable bankruptcy attorney can help you determine the best way for you to deal with an inheritance you wish to keep. An attorney can also help make sure you avoid making mistakes that may keep your debts from being discharged and ensure that you benefit from the maximum exemptions and wind up keeping as many assets as possible.
Contact us for Help and Guidance
The experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer can provide assistance in handling your inheritance and other issues that may arise in filing for bankruptcy. We can help ensure that you avoid problems so you may actually wind up saving money in the long run.
We recognize that everyone’s individual situation is different, so we offer a free consultation to evaluate your entire financial picture. We will examine your income, your debts and your goals and help you find the best path to a brighter financial future.
Delaying can only make your situation worse, so take control of your financial future and learn more about how our firm can be of assistance today. Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what solutions will work best for you.