When your debts cannot be paid and your bills are piling up, if you’re like most of us, you might consider filing for bankruptcy. If this describes you, before you take any action, you should discuss bankruptcy and your other options with an Oklahoma City bankruptcy attorney.
Anyone who’s in debt may file for bankruptcy. There is no rule or law regarding when or for whom bankruptcy is right, but bankruptcy is not uncommon in this state. In 2019, more than 9,000 personal bankruptcies were filed in the State of Oklahoma.
If you’re buried in debts, a bankruptcy lawyer will review your individual situation before suggesting the best way to deal with that debt. If you choose the bankruptcy option, you’ll need to know what happens to any unexpected income you receive after you’ve filed for bankruptcy.
Some people unexpectedly receive inheritances while they are going through the bankruptcy process. What happens to an inheritance if you receive it after you’ve filed for bankruptcy? Exactly what are your rights during the bankruptcy process?
What is Bankruptcy and How Does It Work?
If you’ll keep reading, you will learn the answers to these questions, and you will also learn more about filing for bankruptcy in the State of Oklahoma.
Bankruptcy, as you probably know, is the legal process that can give consumers who have overwhelming debts a fresh financial start. When you file for bankruptcy, the bankruptcy court issues an “automatic stay” that stops creditors from pursuing or harassing you about your debts.
A bankruptcy “estate” is also created by the bankruptcy court, and that “estate” is managed by a court-appointed bankruptcy trustee. This estate temporarily becomes the legal owner of the bankruptcy filer’s property and assets.
What Are Chapter 7 and Chapter 13?
A bankruptcy estate’s ownership of your assets may extend to any assets that you acquire during the bankruptcy process. How bankruptcy affects an inheritance depends on whether a debtor has filed a Chapter 7 or a Chapter 13 bankruptcy. Here is a brief explanation of the difference.
In bankruptcy law, “Chapter 7” and “Chapter 13” are chapters in Title 11 of the United States Code, the complete set of federal laws. The U.S. Code includes 52 “titles,” and Title 11 is the U.S. Bankruptcy Code, the nation’s bankruptcy laws.
Chapters 7 and 13 are the chapters of Title 11 that regulate personal bankruptcies. A Chapter 7 bankruptcy is right for many Oklahoma consumers who are overwhelmed by debt, but a Chapter 13 bankruptcy will be the right option for others.
How Does Chapter 7 Bankruptcy Work?
You must pass a means test to qualify for bankruptcy under Chapter 7, but if you fail to meet the Chapter 7 requirements, you can still file a Chapter 13 bankruptcy.
When you file for bankruptcy under Chapter 7, many of your assets are sold to pay back your creditors, and if you receive an inheritance, the inheritance assets may be absorbed into that process.
What Happens to Inheritances Under Chapter 7?
For instance, if you inherit $50,000 from the estate of a parent who passes away within the first 180 days after you file for a Chapter 7 bankruptcy, your inheritance will be used as a lump sum payment to your creditors and subtracted from your debt.
If you receive property such as an automobile from someone who dies within the first 180 days after you have filed for a Chapter 7 bankruptcy, the item will be liquidated for cash, and that amount will be paid to your creditors.
However, if the person leaving you an inheritance passes away more than 180 days after you have filed for a Chapter 7 bankruptcy, the inheritance will remain your property and does not transfer to the bankruptcy estate.
Whether an inheritance automatically goes toward paying your bankruptcy debt depends on when the decedent – the person leaving the inheritance behind – passes away rather than the date you actually receive the inheritance.
Let’s say that your uncle leaves you a home worth $200,000 and passes away within 180 days of your Chapter 7 bankruptcy filing. Even if your uncle’s will is tied up for months in the probate process, the home eventually will be liquidated and the proceeds will go to the bankruptcy estate.
What Happens to Inheritances Under Chapter 13?
The timing of an inheritance makes a difference under Chapter 7 but not necessarily under Chapter 13. If you file a Chapter 13 bankruptcy, you make monthly payments to your creditors as part of your repayment plan.
If you receive an inheritance during a Chapter 13 bankruptcy process, the inheritance may not automatically go toward paying your bankruptcy debt, but the bankruptcy judge can revise your repayment plan to take into account the value of your inheritance.
While you are involved in the bankruptcy process, it’s important to keep yourself informed about how your assets and any income you may receive in the future might be affected. Do not hesitate to ask your Oklahoma bankruptcy lawyer any question or to raise any concern.
What if Your Spouse Receives an Inheritance?
If your spouse who did not file for bankruptcy with you receives an inheritance while you are engaged in the bankruptcy process, an inheritance is considered personal rather than marital property, so your spouse’s inheritance does not go into your bankruptcy estate.
However, once your spouse’s inheritance funds are comingled with your own assets, the inheritance can lose its separate status. If your spouse buys you a car from his or her inheritance funds, and if you are the car’s legal owner, the car may become part of your bankruptcy estate.
How Can a Bankruptcy Attorney Help You?
Confused? You are not alone. Bankruptcy laws are difficult to understand and include a number of complications and exceptions. You’re going to need the help of an Oklahoma City bankruptcy attorney who can guide you step-by-step through a Chapter 7 or Chapter 13 bankruptcy.
It is essential to consult with a good bankruptcy lawyer about your options – before you file for bankruptcy – because bankruptcy is not right for everyone and it may not be right for you.
For example, your attorney may be able to negotiate directly with your creditors for better payment terms, reducing your monthly payments to make them affordable and allowing you to avoid the bankruptcy process entirely.
The right Oklahoma bankruptcy attorney can explain bankruptcy and your other legal options for debt settlement and recommend the choice that’s best for you.