If you have decided to file a Chapter 13 bankruptcy, you should be aware of things that may impact your situation even after the petition has been filed. Giving the bankruptcy trustee full disclosure of debts and assets will allow them to better assist you in your restructuring. Certain things can change how your bankruptcy is handled, and while the outcome may not be ideal, being honest and forthcoming about any inheritances or newly acquired assets will only help you in the long run.
If you receive an inheritance during your Chapter 13 repayment period, which can last for up to five years, you must make the bankruptcy trustee aware of it. These assets will be included in the bankruptcy estate. This change in your financial situation will be reflected in amended petitions and paperwork. Receiving an inheritance does not mean you can’t file bankruptcy, it just means that your repayment plan may change. Your bankruptcy trustee will include the valuation of your new inheritance in your debt repayment plan. This will show your creditors that funds created by the inheritance will go to pay your debts.
If you know that you will be receiving an inheritance in the near future, you may be able to avoid having it included in your bankruptcy estate by asking the grantor to add a spendthrift provision. This essentially turns the inheritance into an irrevocable trust that can’t be captured by your creditors. Creating an irrevocable trust is one of the best ways to keep inherited assets protected from seizure or liquidation.
If you are not able to request that the grantor includes a spendthrift provision in your inheritance, you should make your trustee aware of the assets as soon as possible. Withholding information about newly acquired assets may appear to the bankruptcy court like you are trying to hide assets. If you are found to be hiding assets, your bankruptcy discharge may be denied.
Bankruptcy law is complex and requires the helpful knowledge of a skilled attorney. To stay informed of your rights during your Chapter 13 bankruptcy or to protect your inherited assets, speak to an attorney.