In a chapter 7 bankruptcy filing, under 11 U.S.C. Section 541(a)(5), the debtor’s interest in inherited property or the debtor’s rights as a beneficiary of a life insurance policy or death benefit plan are property of the estate when arising within 180 days after the bankruptcy filing. But, when does a debtor actually inherit? A debtor’s interest in the inheritance usually arises at the time of the decedent’s death.
Now, no one can predict the future, but we can draw logical conclusions. So, while most debtors hope to not be in the position of inheriting during the bankruptcy, if there is a chance of a potential inheritance, a debtor should wait to file, if they can. It should also be noted that a debtor will not have the option to disclaim the inheritance.
For example, a debtor files their case and 4 months later stands to inherit $100,000. The debtor opts to disclaim the inheritance, meaning nothing would be inherited by the debtor. The debtor’s portion is then split between the remaining beneficiaries. By disclaiming their interest in the inheritance the debtor has deprived the bankruptcy estate of their interest in the inherited property. After all, would not most individuals want to see the inheritance going to a loved one over a creditor? Unfortunately, this is not allowed. Once the case is filed, the debtor no longer has the right to disclaim any inheritance.
When you file bankruptcy you do not always have all the answers, and you cannot predict the future, but it is important to understand the potential impacts of the bankruptcy and the impacts it may have on even the unknown or unrealized assets of the debtor. Contact the attorneys at Kain and Scott and see us at www.kainscott.com. You will be glad you did!