Filing For Bankruptcy? Keep Your Loved Ones Healthy.

Filing for bankruptcy involves looking at your income, expenses and property – not only the real estate, but the stuff you own.  Home furnishings, stocks and bonds, bank accounts – everything you own is up for scrutiny by the bankruptcy trustee.

Though it’s true that in New York much of what you own is probably exempt (who’s going to want to take your old sofa and 3 year-old computer?) it’s a rule that you’ve got to disclose everything you own. For the most part, the property you get after your bankruptcy case is filed has no impact on your case.

Go out and buy a winning lottery ticket the week after your case is filed and it’s all yours (in fact, a New York man won the lottery in 2004 after filing for bankruptcy).  That’s one benefit of getting a case filed – you’re protected from your creditors forevermore.

There are, however, some limits to the rule.  One major exception is when you have a right to receive an inheritance.

Section 541(a)(5)(A) of the U.S. Bankruptcy Code states that the bankruptcy estate includes “any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date by bequest, devise, or inheritance.”

The key here is “acquires or becomes entitled to acquire.”  In other words, if you file for bankruptcy in New York and someone dies within 180 days then your right to get something from their estate is potentially at risk – even if you do not actually get it within that time frame.

For example, if someone dies and leaves you money within 180 days of the date on which you file your bankruptcy case then the bankruptcy trustee may take possession of it – even if the estate is settled in five years.

The goal of the law is to balance what you can pay against what your creditors want.  In order to do that, the law wants to minimize the chance of you running to file a case knowing that a rich relative is on his or her death bed.  Doing so would be considered bad faith in the real world, and the law tries to keep that in mind.

Photo courtesy of JDREAMERS.

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