Can You Protect Your Inheritance During Bankruptcy?

Filing for bankruptcy is never an easy thing. But it's more challenging when you have assets to protect. And while many people may think that having assets should mean that bankruptcy isn't necessary, it may be even more important if you want to keep them. 

An inheritance is one of these unusual and complex assets. How will it affect your bankruptcy? And how can you approach bankruptcy so as to protect your inheritance? Here are answers to some of your questions. 

Will Your Inheritance be Used to Pay Creditors?

First and foremost, will you lose the inheritance? This depends on many factors, including when you receive it and which chapter of bankruptcy you choose. 

Certainly, if you've had the inheritance for some time, it's likely part of your bankruptcy case. In addition, there is a window of time — usually 180 days — during which assets received after the bankruptcy filing can be used to satisfy your debts. 

Should You File Chapter 7 or Chapter 13?

Chapter 7 bankruptcy is the liquidation of eligible assets as of the date of filing. Chapter 13, on the other hand, is a repayment plan over several years. 

For those who want to protect some assets (like an inheritance), Chapter 13 may be a good plan. The inheritance wouldn't be liquidated. However, it may be used in calculations about how much you have to pay over the course of the repayment period. 

Should You Spend Your Inheritance Instead?

The decision of whether or not to file bankruptcy is deeply personal and unique to each person. If you are likely to see your inheritance liquidated anyway, you may wonder if you should spend the inheritance first. 

If your inheritance could prevent you from filing for bankruptcy entirely, it may save you time, stress, and money. However, be certain that you wouldn't be able to protect it through either Chapter 7 or Chapter 13. You don't want to pay off creditors with an asset that would have been safe in bankruptcy.

On the other hand, avoid the temptation to spend the inheritance on frivolities so it doesn't get liquidated to pay creditors. Doing so in the period just before a bankruptcy claim may be deemed bankruptcy fraud and cause your case to be dismissed or certain debts made nondischargeable. 

Where Should You Start?

While you may be able to protect your inheritance even through bankruptcy, it's not easy. The best place to begin is to meet with a qualified bankruptcy attorney in your state today. For more information, contact a bankruptcy attorney near you.