Inheritance from a recently deceased loved one may seem like a gift you should be able to keep. Unfortunately, bankruptcy courts do not necessarily agree. When you declare bankruptcy, your inheritance may be liquidated and split up amongst your creditors.
With careful planning, though, you may be able to save your inheritance from the grips of a bankruptcy court. There are perfectly legal options available to accomplish this task, but they require you to work closely with your loved one or his or her estate.
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Bankruptcy laws state that individuals who receive inheritance before declaring bankruptcy must list that money as an asset. For individuals who inherit money after declaring bankruptcy, the laws get more specific.
Any money or valuable that an individual acquires within 180 days of declaring bankruptcy must be reported if it can be considered nonexempt property. Inheritance is usually classified as nonexempt, so it must be reported when received in the 180 days following a filing.
On the 181st day, however, bankruptcy courts cannot use inherited money to pay back your creditors. As such, if you can work with your benefactor, you may be able to receive your inheritance 180 days after you declare bankruptcy.
There are three main ways to accomplish this. One way is to have yourself written out of your loved one's will. This requires a great deal of trust, because the idea is that your money is routed to another loved one, who will gift you the money when your bankruptcy filing has been settled.
Another way is to have your loved one set up a spendthrift trust, which releases to you on a certain date. Bankruptcy courts cannot touch these funds while they are in the trust. The final way is to disclaim your inheritance, but doing this may mean that you never receive your money.
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