Filing bankruptcy offers a viable way out of debt and an opportunity to achieve firmer financial footing. Since bankruptcy deals primarily with money and assets, it will usually play a role in estate planning issues. Below, learn more about this subject with answers to common questions about estate planning and bankruptcy.
Answers to Common Questions About Estate Planning & Bankruptcy
Are retirement funds lost when filing for bankruptcy?
Many people undertaking estate planning designate loved ones as beneficiaries for their retirement accounts. The good news is that filing bankruptcy typically does not affect retirement funds, and creditors are typically prohibited from taking these funds during the filing process. When possible, continue contributing to these accounts as normal.
Can bankruptcy minimize the debts of an estate?
Yes, but creditors will still seek payment for your debts even after you've passed away. Their objective is to retrieve the funds left in your estate. If you fear leaving a massive debt burden to be sorted out by your estate or grieving loved ones, filing bankruptcy now may be an option worth pursuing.
What happens when you receive an inheritance during an open bankruptcy case?
If you receive an inheritance within 180 days of filing bankruptcy, the inheritance is considered an asset and must be disclosed to the courts. In a Chapter 7 bankruptcy, you may be able to keep an inheritance if it qualifies as a valid exemption, but it can be used to pay creditors. In a Chapter 13 bankruptcy, the inheritance might also qualify as a legitimate exemption, but if it doesn't, its value will be added to what you must repay to your creditors, resulting in higher payments.
For inheritances received after 180 days, a Chapter 7 filer can keep the inheritance, regardless of its exemption status, but a Chapter 13 filer may need to figure the value into their repayment plan. This decision is made by the courts on a case by case basis.
Are there ways to legally retain an inheritance during bankruptcy?
While this is possible, you may be able to request that the inheritance be placed into the ownership of a revocable living trust. However, you technically won't own the inheritance since the trust will. Some judges may permit this option for bankruptcy filers receiving an inheritance.
Whether you are considering estate planning or are the beneficiary of it, an attorney will ensure you understand its connection to filing bankruptcy. Sippel Law Firm, PLLC, has been serving the Kingman, AZ, area for over 40 years. They offer representation in bankruptcy, real estate, and probate law cases. Call (928) 753-2889 or visit them online to schedule an appointment.