You’ve spent your life acquiring assets and building wealth, so an estate plan is essential for deciding how your property is distributed after you’re gone. Unfortunately, if an heir declares bankruptcy before you pass away, your belongings may go to their creditors instead. Below are answers to some common questions about how bankruptcy intersects with estate law.

Common Questions About Bankruptcy & Estate Law

What happens if an heir files for bankruptcy before my death?

When someone files for bankruptcy, the court creates a bankruptcy estate, which takes possession of the petitioner’s assets. Any inheritance received within a certain period of time after a borrower files a petition goes to the bankruptcy estate instead, and will likely be used to pay back creditors.

Can the court seize an inheritance after the bankruptcy is cleared?

Many people assume that once debts are discharged, the court won’t be able to seize any more assets. Unfortunately, this is not the case. In fact, the trustee can take control of any inheritance received up to 180 days after the borrower files their bankruptcy petition.

What if they filed for chapter 13 bankruptcy?

A chapter 13 bankruptcy allows borrowers to make up arrears on secured debts without surrendering any property. While the trustee may not seize a borrower’s inheritance, your heirs may have to amend their payment plan after receiving valuable assets. If they don’t have the resources, they may have no choice but to use the wealth you left behind to make their bankruptcy payments.

How can I protect my assets if my heirs need to file for bankruptcy?

If one of your beneficiaries is filing for debt relief, you may want to see an estate law attorney about amending your will. Once the 180-day window has ended, you can change your will back without worrying about your wealth being seized by the court.

Alternatively, you could set up a living trust to manage the assets you leave behind for the benefit of your heirs. Establishing a trust keeps property out of reach of the trustee and allows you to set conditions on when and how your heirs receive their share. For instance, you may specify that those funds can only be used to buy a house or require the beneficiary to pay off debts before receiving their inheritance.

With over 80 years’ experience and an in-depth understanding of estate law, Morrow, Gordon & Byrd, Ltd. offers detailed advice and customized solutions to clients throughout New Albany and Westerville, OH. Whether you’re preparing your will or facing unusual circumstances, their attorneys will ensure that both your wealth and your family is protected. Call (740) 345-9611 or visit their website to consult with an estate law attorney.