While bankruptcy is a feasible way to legally discharge, reduce, or restructure unmanageable debts, this act will have a lingering impact on your finances—including any assets you may receive at a later date, such as an inheritance. If you are listed as a beneficiary, the assets you receive may change your bankruptcy status. However, the outcome will depend on whether you filed for Chapter 7 or Chapter 13, as well as the timing of the inheritance. To help you navigate this matter, here’s a quick guide to the possibilities and how a bankruptcy lawyer can help. 

How Does Inheritance Affect Chapter 7 Bankruptcy?

Under Chapter 7, most unsecured debts—such as outstanding credit card balances—will be eliminated. Through this process, many of your assets will be put into a bankruptcy estate and managed by an appointed trustee. These assets—such as your home or vehicles—are sold to cover a portion of the outstanding debt.

If you receive an inheritance before or within 180 days of filing for Chapter 7, the assets will be included as part of your bankruptcy estate. Unless the asset is considered to be exempt, it may be liquidated to repay creditors.

If you receive an inheritance after 180 days of filing Chapter 7, it will not become part of the estate and is yours to keep.  

How Does Inheritance Affect Chapter 13 Bankruptcy?

With Chapter 13, your debts are restructured under a repayment plan that is feasible with your current income. After three to five years of repayment, the remaining balance may be eliminated.

Under Chapter 13, any increase in income or property during the repayment period may prompt the court to amend your plan. Since Chapter 13 doesn’t require you to give up assets, you can keep the inheritance. However, the inheritance may lead to an increase in your agreed repayment amount.

What Should I Do if I Receive an Inheritance?

If you receive an inheritance, contact a bankruptcy lawyer. Your legal representative will examine the type of assets received and amend your bankruptcy forms accordingly. They will provide continued support to ensure all adjustments are fair per the terms of your agreement.

What Can I Do to Protect Inherited Assets?

If you know that someone will be leaving you assets, ask them to place them in a revocable living trust as opposed to a will. Assets placed in these trusts can be considered exempt from bankruptcy estates.

Whether you’re interested in filing for bankruptcy or need to amend a current agreement due to inheritance, Padgett & Robertson, Attorneys at Law offers comprehensive support. Based in Mobile, AL, these experienced bankruptcy lawyers will review your case in-depth to determine how to properly report assets, as well as pinpoint opportunities for exemption. To learn more about their representation in Southern Alabama, visit this law firm online. If you’d like to schedule a convenient consultation, call (251) 342-0264.