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Protecting Your Inheritance in a New Jersey Bankruptcy
During an initial bankruptcy consultation it is imperative that all aspects of a potential debtor’s finances are analyzed. This analysis includes all current assets as well as any possible future assets, including any potential inheritances. Sometimes a client may be aware that they are about to receive an inheritance, i.e., a relative is nearing the end of life and the client has knowledge that they are part of the will. Other times a potential client may not be aware that they are a part of an estranged relative or friend’s will. A person may even receive an inheritance by operation of law, when someone dies without a will.
Regardless, the fundamental question becomes whether or not the inheritance is part of the bankruptcy estate pursuant to 11 U.S.C. §541. Section 541(a)(1) provides in part that "property of the estate" includes "all legal or equitable interests of the debtor in property as of the commencement of the case."
Exemptions and an Inheritance
When an individual files bankruptcy all of their assets and all of their liabilities become part of their bankruptcy estate. This estate is administered by a bankruptcy trustee. In a chapter 7, the trustee is tasked with determining whether the debtor has any assets that can be liquidated to pay creditors. In a chapter 13, a debtor doesn’t have to give up their real or personal property, but must make monthly payments to be divided among creditors, as part of the chapter 13 plan. How much a debtor must pay depends on the amount of their nonexempt interest in the real and personal property. Debtors are entitled to exempt a certain amount of property; that is, keep a certain amount of property from being liquidated in a chapter 7 or used in determining a payment plan in a chapter 13. There are different exemption amounts for different types of assets, all controlled by statute and 11 U.S.C. §522. Congress will make periodic changes to the dollar amount of exemptions to keep up with inflation. There is no separate exemption for inheritances and therefore a debtor’s “wildcard exemption” under 11 U.S.C. §522(d)(5) would have to be used in order to cover the exemption.
Timing of Receipt of the Inheritance
In a chapter 7 case, any inheritance to which the debtor becomes entitled, 180 days from the bankruptcy filing becomes part of the bankruptcy estate. Section 541(a)(5) defines "property of the estate" to include property which the debtor "becomes entitled to acquire" by bequest, devise or inheritance within 180 days after the filing of a petition. The word “entitled” is crucial to understanding this statute. The time starts the day a bankruptcy case is filed with the court and stops the day the person who has left you something dies. It does not matter when you receive the inheritance, but rather, is determined on the date of the death. The purpose of this rule is to discourage preemptive bankruptcy filings and those who may rush to file a bankruptcy early when an inheritance is imminent.
In a chapter 13 case, any inheritance received after the bankruptcy filing date but before the case is closed or dismissed, is property of the estate. Property of the estate under§1306(a)(1)includes property of thekindspecified in§541acquired after the petition date but before the case is closed, dismissed, or converted. Section§1306(a)(1)effectively expands what constitutes estate property under§541, therefore, to includeinheritancesacquired beyond the 180–day limitation set forth in§541(a)(5).
Contact a New Jersey Bankruptcy Attorney
Retaining a competent New Jersey bankruptcy attorney is important for adequate pre-bankruptcy planning and analysis. It is important to know which of your assets are protected. If you are unsure of your rights, please give us a call for a free consultation. We have office locations in Wayne, Hoboken, Newark, and Hackensack.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.
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