Inheritance After Bankruptcy
Chapter 7 or 13 filers who come into an inheritance after bankruptcy should seek legal counsel to determine how additional assets of money or real property will be handled. When cash-strapped consumers come into large sums of money, it can be a cause to celebrate or cry. Federal inheritance tax laws prohibit debtors from concealing assets, including monies or property legally and rightfully willed to them. The irony is that if the inheritance had been awarded prior to making the decision to file, the debtor may have had sufficient assets to cover outstanding debts. Nevertheless, it's a case of too little, too late and now the courts have the last word.
Bankruptcy is a legal means of providing consumer debt protection for individuals seeking relief from overwhelming financial woes. Without proper monetary management and sound financial planning, anyone is subject to become bankrupt. Unless an individual has a contingency fund, an unexpected illness, chronic unemployment, or credit card abuse can all push a consumer over the edge and into bankruptcy. U.S. Bankruptcy law does not strip an indebted individual of all assets, but there are some concessions that have to be made to satisfy creditors. The law allows debtors to retain Social Security payments, VA benefits, unemployment compensation and certain property deemed exempt by the court. However, when it comes to an inheritance after bankruptcy or other windfall gain, the courts will exercise the right to legally seize additional income to fulfill debtor obligations. Jesus Christ taught His disciples to pay the government and to "Render to Caesar the things that are Caesar's, and to God the things that are God's." (Matthew 12:17) When consumers disobey the law of good money management, they sometimes find themselves in a position of having to "render" unto the government monies they would rather keep, but the law is the law and it is meant to be observed.
In a Chapter 7 bankruptcy proceeding, court-appointed trustees liquidate debtor assets, less exemptions, to repay outstanding debts to creditors. In a Chapter 13 proceeding, wage earners with a steady income are required to participate in a structured payment plan which must meet the approval of the court and creditors. If a debtor inherits money or property within 180 days (or 6 months) after filing, these assets automatically become part of the debtor's estate and can be seized, liquidated and distributed to creditors. Inherited assets increase the Chapter 13 debtor's disposable income; therefore the original repayment plan would also have to be adjusted to reflect the increase. Debtors who are beneficiaries of a decedent's estate may look upon an inheritance as a blessing, since there may be additional funding available which may help expedite creditor payments. Assets derived from heir property may be sufficient to settle all outstanding debts and help debtors get back on the road to financial recovery. Depending upon the amount of indebtedness at the time of filing, money willed to the debtor could even shorten the time needed to repay creditors and alleviate the drain on the wage earner's paychecks.
Federal inheritance tax laws, called estate taxes in the United States, are assessed against property willed by individuals who have died before being transferred to beneficiaries. Estate taxes are computed based on the cumulative value of the decedent's gross estate (total property owned before death), less any deductions; and paid to the federal government by the executor of the decedent's estate. When the estate is transferred as heir property, beneficiaries are required to pay inheritance, or "death taxes." However, current federal inheritance tax laws allow individuals to bequeath up to $1,050,000 to heirs without incurring an estate tax; therefore, most heir property is estate tax free. States generally follow the leading of federal laws in imposing an inheritance tax on beneficiaries; however each state's laws may differ slightly. Beneficiaries should consult with an attorney to determine the amount of tax and familiarize themselves with the laws of their resident state. According to federal inheritance tax laws and U.S. bankruptcy codes, a beneficiary who has filed for consumer debt protection must willingly report an inheritance after bankruptcy to the trustee as part of the estate. In addition to liquidating debtor estates to pay creditors, trustees are charged with the responsibility of locating all disposable income and assets. Inherited assets are distributed using an attorney and legal instruments, usually the decedent's last will and testament. Once a will has been probated, a procedure which determines its validity, it becomes part of the public record -- fully accessible to all beneficiaries, trustees and creditors.
Although it may take months and sometimes years to settle a decedent's estate, once a debtor receives assets left to him, federal inheritance tax laws mandate that money and property be turned over to the courts for distribution to pay unpaid debts. Attempting to hide an inheritance after bankruptcy constitutes concealment of assets, a federal charge of bankruptcy fraud, punishable by imprisonment. According to Section 545 of the bankruptcy code, trustees can force debtors to relinquish an inheritance after bankruptcy in an effort to exercise the federally-mandated right to collect debtor assets. Even if the decedent's estate has a pre-existing federal tax lien, the trustee's right to seize assets overrides the lien. Once inherited assets have been liquidated and distributed to satisfy creditors, the debtor will be the last in line for payment, if anything is left. However, if most or all of the outstanding debts are paid, the inheritance will have been well spent; and the debtor will be well on the way to financial recovery and a second chance for a debt-free life.
Federal Bankruptcy LawsRecently, federal bankruptcy laws have changed and become more stringent on who can file and when. These new bankruptcy laws make it more necessary that a petitioner hire someone who can guide him through the legal system. Otherwise, the petitioner may make mistakes that make it more difficult to discharge debt and give more time to creditors to come against him. There are two types of laws that can give protection to the debtor: Chapter 7 and Chapter 13. Each type has different requirements. In Chapter 7, the person filing has to meet certain income requirements, namely that the person has an income either equal to or less than the median income in his state. If the debtor makes more than the median income, he may qualify under certain calculations and applicable expenses. A person should choose Chapter 7 if he has little property other than furniture and clothing, has little or no money after paying expenses, and has mostly unsecured debts. These include debts such as credit card bills or medical bills. This person must make an appointment with credit counselor for a pre-filing session in which the financial situation is examined to determine if this is the best option for the filer.
Federal bankruptcy laws also require creditors must stop harassing the person who owes them money as soon as the court files an automatic stay. This means that the court will decide which debts have to be paid back and which will be discharged, which means they will be completely eliminated. The new bankruptcy laws allow that most non-exempt assets can be sold or liquidated by the trustee for the benefit of the creditors. That's why it's so important for the debtor to determine which of the bankruptcies would best fit his situation. A person could lose assets if this person files under Chapter 7, so the petitioner must determine if he owns too much property and would therefore be better off filing under Chapter 13. In other words, if a person owns property, has equity in property, and wants to keep it, that person should file under Chapter 13 because these assets will not be liquidated. The debtor will be given additional time to repay the back payments while keeping up with the current payments on the property. Also, if a person has a regular income but just can't keep up with the payments he owes, he should file under Chapter 13. The court will set up a trustee, who will manage the plan set up to repay the debts. This trustee will have contact with the creditors, relieving the individual of dealing with them. It's also easier to file for Chapter 13 because the filer does not have to take a means test, but as soon as he files he can just get an automatic stay to stop foreclosures or repossessions.
The U.S. Bankruptcy Code requires that the petitioner filing for Chapter 13 complete a U.S. Trustee approved Credit Counseling Briefing. Usually, an attorney will file this document with the petition, and it's essential that this document is filled out correctly or the petition may be dismissed. This will allow creditors to once again come against the debtor until the right paperwork can be filed. These federal bankruptcy laws were put into effect in 2005, and this makes it more important for the petitioner to consult an appropriate attorney or other expert. Then the court enters the automatic stay which precludes creditors from taking any more action against the debtor. The court then sends a notice to all creditors listed and assigns a trustee to the case. The typical case lasts from 36 to 60 months, in which the petitioner has time to turn around his financial situation and begin repaying what is owed on his property. The new bankruptcy laws, however, make it more difficult for the debtor to discharge what is owed under Chapter 13. Tax debts cannot be discharged, but this type of action can help the person who owes the IRS catch up on past amounts. The debtor also cannot discharge student loans, so this person would probably want to file for Chapter 13. Chapter 7 would not allow him to liquidate his student loans, but Chapter 13 would enable him to set up a reasonable schedule to repay the loans. One important step to take is to make a decision before the financial situation gets too bad. But many people wait until they are in the middle of a foreclosure or a repossession before turning to federal bankruptcy laws for protection. Sometimes, emergency measures can be worked out with the court, but many times, the process may be started too late to alleviate the situation.
Because the new bankruptcy laws were enacted so recently, a person desiring to petition for protection may need the expert opinion of someone who knows the ins and outs of the court system. Many law firms specialize in this type of action and have all the information needed to determine the best option for each person. Bankruptcies are some of the most complex parts of our legal system, involving contract laws, real estate laws, and tax laws. The court will determine which creditor is to get paid and in which order. There are two other types of bankruptcies that apply to specific people--Chapter 11 applies to businesses and Chapter 12 applies to farmers. Once again, these legal processes have specific forms and documents that need to be completed. But the greatest debt we owe is to God, who is our protector. The Bible says, "Offer unto God thanksgiving; and pay thy vows unto the most High" (Psalm 50:14). As we repay what we owe to men, we must also acknowledge out debt to God.