Bankruptcy and Your Inheritance

                One of the questions that the trustees at an Indianapolis 341 meeting of creditors (this is the hearing that all bankruptcy debtors must attend) is will always ask is "Do you expect to receive any inheritance or have you gotten word that you are entitled to any inheritance?"  The reason that a trustee asks this question is because your inheritance can be affected by bankruptcy.

                  Most people I meet with at Halcomb Singler who are considering filing bankruptcy tell me that they wish they were expecting an inheritance, but didn't see that happening.  Now, this is not to say that they want their relatives to pass away; but I do think it reflects how people wish that they were able to solve their debt problems without the assistance of bankruptcy.  But, for some people the issue of bankruptcy and how it could affect their inheritance is a very big deal.

                  Specifically, how bankruptcy could affect inheritance is important for those individuals who have parents/relatives/friends or anyone else who they believe have left the potential bankruptcy debtor money through a will or trust.  This issue is increasingly important if the person leaving money to the potential bankruptcy debtor is ill.  The bottom line is that if you inherit money within 180 days of the filing of a Chapter 7 bankruptcy petition, you inheritance is property of the bankruptcy estate and may be used to repay your creditors.  Additionally, during the pendency of a Chapter 13 bankruptcy, your inheritance is part of the bankruptcy estate.  When money is part of your bankruptcy estate it means that unless you are able to exempt it that it is going to be used to repay your creditors.  

                   So what does this mean?  Should no one who expects that they will receive an inheritance at any point in their lives avoid filing bankruptcy?  No.  Most of my clients who file bankruptcy do so assuming that they will not inherit any money during the next 5 years, which is the longest amount of time that a Chapter 13 bankruptcy can take.  In addition, as I have discussed in other posting, people don't file bankruptcy because they want to, they file because they have to and cannot avoid filing just because of some problem that may or may not arise.  However, in some circumstances I will have clients who have ill parents who are wealthy from whom they expect to eventually inherit and they know that their mother or father would be unhappy if all of the money saved went to creditors.  In that circumstance the parent may opt to change his or her estate plan to either leave the potential debtor child out of the will or trust.  If the parent wants to make sure that the debtor child does receive funds, but does not want the funds to go to the creditors of a child then a spendthrift trust may be drafted.  Either of these options, if done correctly, will prevent creditors from being able to usurp the hard-earned money of the parent should he or she pass away during the time where the inheritance would become property of the bankruptcy estate.  But it is the parent who must effectuate the change in this example.  After all, it is the parent's estate plan and it is the parent who will decide how they would like their money to be distributed after their passing.

                  If you have a family member who is considering filing bankruptcy and you would like to speak with an attorney about updating your estate planning documents then I am not your girl.  I don't typically do much estate planning.  But luckily my business partner, Gregory Halcomb, spends the majority of his time drafting estate planning documents for clients and would be more than willing to help.  Greg is also the one man I know under the age of 70 who can pull off a bow tie (see his picture on our website), which is just plain impressive.  On the other hand, if you are considering bankruptcy due to foreclosure, long-term job loss, decrease in income, or creditors hounding you that you cannot pay and live in Indianapolis or the surrounding areas I would be happy to meet with you to discuss your situation.  There is no fee for this initial consultation, so if you would like to meet with me at our Carmel office call me at (317) 575-8222 ext. 12.  You may or may not opt to file bankruptcy after this meeting, but I can certainly answer your questions and help you come up with a plan for dealing with your financial problems.


Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.