What happens if you inherit money while in Chapter 13 bankruptcy?

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Question:

What happens if you inherit money while in Chapter 13 bankruptcy?

Answer:

It’s probably one of the worst nightmares of anyone who has ever declared or considered declaring bankruptcy.  You have begun or completed your bankruptcy proceedings and are just about to get your life back on track.  Your debts have been discharged, and then you find out that a wealthy relative has passed away and you are about to inherit some money.  Sounds great, right?  Not really, because the bankruptcy court may still be able to seize that money to pay back your debts.  What can you do to stop this?  What happens if you inherit money during a Chapter 13 bankruptcy?

Under the rules if you inherit Chapter 13 bankruptcy proceedings, you have to relinquish any claims to the money if the person giving it to you has died within 180 days of the time that you declared bankruptcy.  What this means is that you will need to either give up your inheritance to someone else, who you trust to hold it until 180 days has passed, or get your relatives to set up what is called a spendthrift trust in order to make sure that the court cannot seize the money.  Or, you can just not claim the inheritance at all.  Any choice other than these will result in the court getting the money towards the bankruptcy.

To get help determining how to best preserve your inheritance in this situation, you should strongly consider speaking with an experienced lawyer for assistance.

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