It’s wise to work with a lawyer to establish your wills and estates early in your adult life, but you should also consider how major financial events can affect your plans. In an increasingly complex financial world, understanding how estate plans can be affected by debt relief solutions can help you prepare for the future. Below, you’ll find answers to a few frequently asked questions about how bankruptcy intersects with estate planning.
A Guide to Bankruptcy’s Effects on Wills & Estates
Are inheritances used to pay off creditors?
An inheritance may be protected from bankruptcy proceedings in cases where the person files for debt relief more than 180 days after receiving the inheritance. However, filing earlier will leave you open to a seizure of your inheritance. If you expect to receive an inheritance in the near future, it may be better to delay filing for bankruptcy.
Should I use a retirement account to pay off debts?
Typically, withdrawing funds from a retirement account will expose you to taxes and fees, but some people still use this money to pay off their debts. It may be better to resist taking this action, since an estate planning attorney may be able to help you protect assets from creditors during probate.
What happens if I die during a bankruptcy?
Before filing for a Chapter 7 or 13, you should take the time to consult your wills and estates attorney. If you die in the middle of filing, the bankruptcy can still proceed. Your beneficiaries would have to file a petition with the court to request a dismissal. If your beneficiaries can establish hardship, the judge could dismiss the filing altogether, or may decide to convert a Chapter 13 to a Chapter 7.
Are trusts protected in a bankruptcy?
Drafting a revocable trust is a common way of transferring assets to loved ones. However, in a bankruptcy, assets included in a revocable trust are vulnerable to seizure. This is because the individual filing for a Chapter 7 or 13 still maintains ownership of the assets in a revocable trust, which means they still have access to those assets. While an irrevocable trust will protect assets, the individual relinquishes access and control over the trust. If you’re sure you won’t need access to the assets, an irrevocable trust may be the better way to protect your finances.
If you’re seeking debt or estate advice, consult an attorney who handles both bankruptcies and wills and estates at The Law Office of J. Baron Groshon. Located in Charlotte, NC, and serving Charlotte, Concord, Gastonia, and Lake Norman, their lawyers can help you address your estate planning needs and protect your assets as you pursue your debt relief options. They are proud to have been practicing in the community for more than 28 years. To schedule a consultation, visit them online or call (704) 342-2876.