How Long After I File Bankruptcy Should My Rich Uncle Die?

23 Dec How Long After I File Bankruptcy Should My Rich Uncle Die?

It is not uncommon for a person considering filing a bankruptcy case to be aware that he or she is a beneficiary under the will of a person who might be near death. It might be feared that the proceeds from the resulting inheritance could be lost in the bankruptcy, and distributed to creditors. To avoid losing the inheritance, the bankruptcy debtor should remember a few basic points.

First, under the law, an inheritance is an asset of the bankruptcy case, available for distribution to creditors, only if the bankruptcy debtor has a legally recognizable interest in the inheritance on the day the bankruptcy is filed (subject to the exception stated below). The debtor has no interest in the inheritance while the other party is still living. Thus, filing bankruptcy while the debtor is merely named as a beneficiary under a will does not bring the hypothetical future inheritance into the bankruptcy case. After all, the will could be changed, and the debtor has no interest in a will until the other party dies.

Second, under section 541(a)(5) of the bankruptcy law, if the other party dies in the 180 day period following the filing of the bankruptcy case, the inheritance becomes part of the bankruptcy estate, just as if the inheritance existed on the date the case was filed. This means that if it is possible, the bankruptcy should be filed quickly, to make it unlikely the other party will die during the 180 day period. Alternatively, the bankruptcy might need to be delayed, so that the inheritance can be received and properly disposed of prior to the actual filing of the bankruptcy. To properly dispose of an inheritance or other funds prior to a bankruptcy, consult an attorney to find out what is allowed.

It might even be said, tongue in cheek, that the “rich uncle” should be kept on life support until 181 days has elapsed after the bankruptcy filing.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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