Bankruptcy – What Happens to My Inheritance After I File?
In a bankruptcy case, any inheritance that you are about to receive should be brought to the attention of your bankruptcy attorney before any case is filed.
I recently spoke with a couple in my Rome office whose mother had recently died. These Rome Ga bankruptcy clients were scared to death that they would not be able to keep any of the inheritance money. Fortunately, we will be able to protect their inheritance in their situation.
As a general rule, if your inheritance has a value of less than $5000.00, you will most likely be able to protect it in Georgia.
However, if your inheritance is worth more than $5,000.00, you may not want to risk it by filing a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the trustee can liquidate your inheritance and keep any amount over what you are able to protect with Georgia exemptions. For example, if you inherit $10,000.00 and then file Chapter 7, the trustee will allow you to keep $5000 (assuming you have not used up your wildcard exemption on something else) and then take the other $5,000 and use the money to pay your creditors.
When you file a Chapter 7, you cannot quit the case if you don’t like the way things are going. Rolling the dice is never the wise decision. However, in some cases, it might be worth it to give your inheritance to a Chapter 7 trustee in exchange for discharging all of your other debt.
In other situations, you may be able to protect the asset you inherited in a Chapter 13 case. For example, let us say that you have inherited some family land. In this example, we will assume that your share of the land is worth $50,000.00. If we can used the $5,000.00 wildcard exemption, that will leave $45,000 of exposed equity.
To protect your inheritance, your must either:
1. Pay all of your unsecured creditors back at 100 cents on the dollar or:
2. Pay your unsecured creditors the same amount of money that they would receive if your inheritance was liquidated (also known as the exposed equity).
In a 100 percent Chapter 13 plan, it does not matter how much the land is worth because all of the creditors are getting paid at 100 cents on the dollar.
In situations where the debt exceeds the value of the land, all you have to pay back is an amount of money that will protect the exposed equity. For example, lets say you owe $100,000.00 in credit card debt and your exposed equity is $45,000.00. Any chapter 13 plan that pays back $45,000.00 to the unsecured creditors will protect your exposed equity.
Telling your bankruptcy attorney about all of your assets before you file will save you a lot of heart ache and disappointment. Your bankruptcy attorney is on your side but he can’t protect your assets if you don’t disclose everything to him.