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When is an inheritance included in bankruptcy?

For a financially distressed person, dealing with the death of a loved one simply adds a layer of complexity to what is often a convoluted situation. In the wake of a loved one's unexpected passing, people may come into a share of income as a result of inheritance. If this happens, a person is likely to ask, does inheritance income qualify as a bankruptcy exemption?

The answer depends on when the inheritance is received. Generally, income a person receives after filing for bankruptcy doesn't have to be included in the filing. The court will not be looking for additional money after the fact to pay back creditors in cases where the filer gets a new, high paying job or even strikes it rich by playing the lottery.

In general, however, courts may look poorly upon people who file for bankruptcy just before receiving a windfall, such as an inheritance. This is particularly true when a person may be expecting the money to come.

Under federal law, there is a 180-day window after a person files for bankruptcy in which they are required to report an inheritance. In this period of time, a person is obligated to inform the bankruptcy court, at which point the court is able to use the inheritance or other qualifying funds received to pay back creditors.

Bankruptcy is a big deal, and for most, it is not something to rush into. When facing such an important decision it is understandable to have questions. Speaking with a debt relief professional can help alleviate some of the anxiety. A professional understands the intricacies of relevant bankruptcy laws, and can determine what income and assets must be included in a bankruptcy filing. This kind of peace of mind may be essential to successfully working through debt issues and finding stability again.

Source: Fox Business, "In Inheritance at Risk With Bankruptcy Filing?" Sally Herigstad, July 10, 2012

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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