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Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much??

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Regular Contributor

Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much??

So a "parent-in-law" passed away just a few weeks after our filing, but before our 341 meeting.  Today before our meeting, I was able to ask our attorney about the possibility of us getting a sizable inheritance, and if we would be able to keep any of it.  His answer was not good.  He said in all honesty it would be easiest to just give it all over to the trustee.  Im sure its not going to be enough to pay off our BK and have anything left.  He did say we could hold back $4k per spouse.  So best we could ask for is to be able to exempt out $8k total.

 

My question is has anyone here did any better than that?  Were you able to get the money into a protected account or maybe given to a trusted person to where it was not accessable to the trustee?  Nothing illegal, but loophole type situations?  We've NEVER gotten a windfall of any kind and I'd hate the one and only time we do, have it get eaten up by the BK. 

 

And YES I understand that we owe the money to our creditors.  I dont need that moral speech.  I just want to hear from anyone that has gone through this and has real world experience.  If it has to go into the 13 no matter what, we might just dismiss it all together, then setup a trust and then refile....?  Might work??  Please help any info would be appreciated. 

Message 1 of 11
10 REPLIES 10
Established Member

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

It's not a question of morals. What you're asking is how to break the law.

And since you're asking about personal experience, I inherited property just before my Chap 7 341.  It took a year but the trustee sold the property and is now in the process of distributing the assets to my creditors.

Message 2 of 11
Community Leader
Senior Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?


@fishyspice wrote:

It's not a question of morals. What you're asking is how to break the law.


+1

EXP 753 TU 781 EQ 733
Message 3 of 11
Regular Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

Not breaking the law.  Finding creative exemptions.  Thanks for your input though.

Message 4 of 11
Established Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

A trust would not be a viable option for you. In order to protect your assets from creditors with a trust, you must also protect those assets from you. In other words, the trust must be an irrevocable trust over which you do not have the ability to change the terms. It is not possible to create such an irrevocable trust that allows you to withdraw money to buy new cars or go on vacations or even provides you with a generous monthly stipend. It would be possible to preserve that money for designated beneficiary, such as your children.

Your problem is that you are currently in a bankruptcy. Even if you dismissed the bankruptcy, got the inheritance and set up any kind of trust, the money transfer to the trust could be attacked by creditors as a fraudulent transfer. Fraudulent because the assets were transferred into a trust to evade known creditors. They will do so. It is not difficult for them. It would simply be included as a Count in their collection Complaint.

Your BK attorney, who you give us no reason to believe is giving you incompetent advice, has told you the best you can hope for is to keep 4K each. By all means get a second opinion. Make some calls, pay a couple initial consultation fees, but I think you will find that your options are really either to dismiss the bankruptcy and use the inheritance to pay the creditors or stay in the bankruptcy and retain 8K of the inheritance.
Message 5 of 11
Established Member

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

Regarding a previous poster's comments:

 

When it comes to bankruptcy and inheritance, the date that matters is not the date that you receive the inheritance, it's the date you became entitled to the inheritance, in other words, the date the person passed away.

 

 

 

Message 6 of 11
Regular Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

The date you are referring occured after filing but before the 341 meeting.

Message 7 of 11
Established Member

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

I guess you could have your bankruptcy dismissed, then refile 6 months after you receive the inheritance.  Is that what you'd want to do?  Make sure you run this by your attorney. 

Message 8 of 11
Frequent Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

Restating OP’s issue so that it is clear:

 

My spouse and I are in a Chapter 13. My parent-in-law passed away just a few weeks after our filing. We may be getting a sizable inheritance. Our attorney stated that it would be easiest to just give it to the trustee subject to our exemption allowance of $8k.

I want to know if there is any way for us to keep all of the funds.

 

The correct answer is “no - so long as you remain in bankruptcy".

 

The funds, subject to any allowed exemption, belong to the bankruptcy estate regardless of when you actually receive them. If you wish to keep the funds then you will have to seek to dismiss your Chapter 13. Whether or not a dismissal is in your best interest is something you will need to discuss with your attorney.

 

If you elect to dismiss you better not think about going back into bankruptcy for a very, very long time and you better keep detailed records of exactly how you spent the inheritance. Maybe use the funds to settle with creditors one-on-one.

 

Be warned. . . There is no such thing as “asset protection” once you have creditors that you are not paying (and sometimes even if you are paying). Anyone who tells you otherwise is a fool and has not faced the very serious consequences of those supposed "asset protection devices" being set aside as fraudulent conveyances.

 

Des.

 

 

Message 9 of 11
Community Leader
Super Contributor

Re: Anyone Inherit any money *during* a Chapter 13 BK?? If so, did you get to keep it and how much?

By law, you have to report your "possible" inheritance. You'll be asked the question by the trustee anyways in your 341 MOC under oath with the judge. They will ask you, if you have any knowledge of money owed to you by inheritance or others means that you are aware of, and if you say no, you just purged yourself under oath in a federal court, which you could do jail time for. 

 

So, the only options you have are

 

1) Cancel your BK, and pay your creditors. You will still have dismissed BK on your reports, sorry...you already filed , that cant be taken back. 

2) Report it to the Trustee, and pray he leaves you with the $8k exemption, still a nice chunk of change. 

 

The upside to the trustee taking the rest of it, is that your Balance will go down considerably now on your payback, and cut your time down as well.  Sorry, but the trustee is there for the creditors, not you, and if there's assests involved (money, etc..), he will take it and distribute it to your creditors.   Im paging @RobertEG for his expertise here, and hope he chimes in with his legal knowledge. 


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Message 10 of 11
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