Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
When you inherit money during a Rockland County bankruptcy case, it’s important to understand that the inheritance may be considered part of your bankruptcy estate, depending on the type of bankruptcy you have filed and when you are eligible to receive the funds. Typically, during Chapter 7, funds received within 180 days of filing are eligible for liquidation, while funds received during Chapter 13 can impact your repayment plan. Without further ado, please follow along to learn more about what happens if you inherit money during your bankruptcy proceedings and how a proficient Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help you navigate this sensitive financial tightrope you are balancing on, so to speak.
Does It Matter If I Inherit Money During Bankruptcy in New York?
Bankruptcy law treats inheritances differently, depending on the type of chapter you have filed and when the inheritance is received. As these assets can impact creditor repayment obligations, the bankruptcy trustee assigned to your case must carefully evaluate the circumstances before proceeding.
If you are currently in the midst of a Chapter 7 bankruptcy case, any inherited money you receive within the 180-day window following your filing may become part of your bankruptcy estate. This means that your bankruptcy trustee may use this money to pay off your outstanding creditors. However, you may attempt to claim this inheritance as exempt under New York State bankruptcy law. Rest assured, any inheritance received after these 180 days is protected and yours to keep.
It is more likely that you will inherit money during your Chapter 13 bankruptcy, as your mandatory repayment plan may last anywhere from three to five years. If so, this inheritance may be considered part of your assets. Therefore, after having to report it to your bankruptcy trustee, they may require you to modify your repayment schedule.
What Counts as an Inheritance During Bankruptcy?
- Cash inheritances
- Real estate
- Valuable personal property
- Life insurance proceeds paid through an estate
- Distributions from trust funds
- Investment and retirement accounts
Why Timing Matters During Bankruptcy Cases
- The 180-day rule, as detailed in the U.S. Bankruptcy Code, is an important factor in Chapter 7 cases
- The most important date is when you become legally entitled to the inheritance
- In many situations, entitlement begins on the date the individual dies
- Delayed probate proceedings typically do not prevent inherited funds from being included in the bankruptcy estate
- The bankruptcy trustee may carefully review inheritance timing during an active bankruptcy case
How Does the 180-Day Inheritance Rule Work?
As mentioned, the federal Bankruptcy Code details that debtors are required to disclose and surrender inheritances obtained shortly after filing for bankruptcy. Due to the short nature and liquidation process, this rule primarily applies to Chapter 7 Bankruptcy filings
180-Day Rule Explanation
- The 180-day clock begins on the date you file your bankruptcy case
- If you are entitled to an inheritance within that window, it may be considered part of the bankruptcy estate
- Trustees can use inherited assets to repay creditors
- This rule is applicable, even if probate has not concluded
- The rule is applicable, even if you have not yet received the funds yet
Important Legal Considerations
The day you become legally entitled to the inheritance generally refers to the date on which the individual passed away, not the date on which the inheritance is received
How Are Chapters 7 and 13 Different in Rockland County?
The chapter you file in Nanuet, Spring Valley, Nyack, or any other Rockland County community can have an impact on what happens to an inheritance received during bankruptcy. Chapter 7 is primarily a short liquidation process, while Chapter 13 is a three- to five-year repayment process.
Chapter 7 Bankruptcy and Inheritances
- Inheritances received within 180 days are considered estate property
- Trustees can liquidate inherited assets to repay creditors
- New York bankruptcy exemptions may be used to protect certain assets
- Inheritances received after 180 days are typically protected during bankruptcy
Chapter 13 Bankruptcy and Inheritances
- Trustees may seek to modify the repayment plan following a substantial inheritance
- Monthly payments may increase depending on the filer’s disposable income
Is There a Difference If I Inherit Money Before Filing for Bankruptcy?
On the other hand, say that you become entitled to receive an inheritance before filing for Chapter 7 bankruptcy in New York. Well, similar to inheriting money within the 180-day window following your filing, these funds may become part of your bankruptcy estate.
Strategies That Can Help Protect Inherited Assets
- New York bankruptcy exemptions may help protect certain inherited assets
- Chapter 13 generally allows filers to keep more property through repayment plans
- A spendthrift trust offers more protection in some circumstances
- Trustees closely consider pre-bankruptcy financial transfers and conversions of assets
Spendthrift Trusts and Bankruptcy Protection
A popular alternative is asking the grantor of this inheritance to open a spendthrift trust on your behalf. This is because this trust type may not be claimed by creditors, according to the United States Bankruptcy Code. Therefore, these funds may not be incorporated into your bankruptcy estate.
Contact an Experienced Rockland County Bankruptcy Attorney Today
Your bankruptcy proceedings should not go on without the wise legal counsel of a talented Rockland County bankruptcy attorney. So please contact us to schedule your free initial consultation with us at The Law Offices of Allen A. Kolber, Esq. today.
