When you’re behind on mortgage payments and trying to protect your family’s future, the last thing you expect is to lose money you haven’t received yet. If you live in Ogden or anywhere in Utah, and you plan to file for Chapter 7 while expecting an inheritance, you need to know how state and federal laws treat that money.
Chapter 7 bankruptcy helps you erase unsecured debt, such as credit cards, personal loans and medical bills. In most cases, the court appoints a trustee who may sell certain non-exempt assets to repay your creditors. While many people keep most of what they own, the trustee may consider inherited money part of your estate depending on when it becomes available.
To understand how this rule could apply to your situation, let’s look at what happens when you obtain money while going through a Chapter 7 case.
What happens if you inherit money while in Chapter 7?
If you receive an inheritance within 180 days after filing, the trustee may use it to repay your creditors. This is acceptable even if the estate hasn’t released the funds yet. This often catches people off guard. The 180-day rule is strict and applies even when you haven’t accessed the money.
But what if you receive the inheritance before or after that period? Timing isn’t just important; it can determine whether the court protects or seizes that money.
What Happens If You File for Bankruptcy After Receiving an Inheritance?
If you receive the inheritance before filing for bankruptcy, the court may still count it as part of your assets. On the other hand, if it comes to more than 180 days after you file, the law may protect it. However, waiting too long to file can increase the risk of foreclosure or wage garnishment. Be certain you understand these trade-offs before deciding when or whether to file for bankruptcy.
In some situations, choosing a different type of bankruptcy could help you protect that inheritance while staying current on other obligations.
How Chapter 13 handles inheritance differently
Chapter 13 works differently. Instead of selling assets, you repay debts through a structured plan. If you inherit money during your repayment period, the court might adjust your monthly payments, but you typically don’t get to lose the full amount.
If you’re trying to save your home and keep your future income secure, Chapter 13 may offer the flexibility you need. To make the best decision for your case, start with a few important steps that will protect your assets from the beginning.
What you can do right now to protect your inheritance
If you’re considering bankruptcy and might receive an inheritance, take steps now to safeguard what could support your family later. The actions below can guide you in the right direction:
- Understand the 180-day rule: Count the days from your filing date to assess risk
- Disclose expected assets: Report any possible inheritance to the court
- Avoid filing delays: Prevent foreclosure or legal action by acting quickly
- Consult with a local attorney: Get legal advice based on Utah bankruptcy law
Addressing the issue promptly can help you avoid problems and keep your family financially secure.
Consider consulting with a bankruptcy lawyer before you risk losing what’s yours.
If you’re behind on your mortgage or expecting an inheritance, guidance from a bankruptcy attorney might help. Your next move could make the difference between keeping your home and starting over.