Is the inheritance toast?

I am on the brink of bankruptcy, yet, I am currently expecting proceed from my late mother's inherited property that became mine when she passed in May 2008.

I have already lost a significant amount of my inheritance already due to a sinking realty market and can not stomach that thought of these proceeds going to a Trustee or even my creditors.

I reside in New York State.  If the proceeds are shortly recieved, how long would I have to legally wait before I even considered filing for C7?

Thank you much,
Christian

I suggest you talk to a bankruptcy lawyer and review your options.

If you took title to the property in 2008 or between then and now, it's your property and has nothing to do with inheritance. If you sell the property, the money is your money and has to be included in the bankruptcy estate to pay down your creditors before the remaining balances can be discharged.

If the estate is still in probate and the property is being sold out of probate and then you receive a distribution from the estate, if you receive that distribution within 180 days after filing bankruptcy the distribution becomes part of the bankruptcy estate to pay down your creditors before the remaining balances can be discharged.

http://www.christianet.com/bankruptcy/inheritanceafterbankruptcy.htm

You might consider using the proceeds to pay off your creditors. Even if you end up with nothing out of the inheritance, you will be out of debt or close to being out of debt without the consequences that go along with bankruptcy.

 

Jack is right.  Careful planning is in order so you can keep as much as possible, which means working with a lawyer to establish the correct timing of a bankruptcy, given your debts and anticipated assets.

Thank you, gentleman.

I have been working with a NY bankruptcy attorney and he told me that there is no way to save the money.  As of right now, the will is out of probate.  I never took possession of the title.  It remains in the names of my 2 oldest siblings.

We had a pending deal on the propery that fell apart.  What if I was to file C7 now and a year later the propery was sold?

Should I consider renouncing my rights to inheritance?

 

Thank you

bigbipper:

I never took possession of the title.  It remains in the names of my 2 oldest siblings.

Huh?

Contradiction alert.

Earlier you wrote that the property became yours in 2008. Now you write that you never took possession and it remains in the names of your two siblings.

Explain, please?

 

This is why I am on an attorney forum. 

My assumption was that I took possession of the property as one of my mother's children when she passed in 2008.  That is not the case.  My apologies for the confusion.

When the will was executed, the property became possession of the two oldest siblings.  The sale of such would be then be split 4 ways.

 

Your description of what happened creates considerable confusion.

If title passed to 2  oldest sibs then its possible you don't hold anything at this moment?   And unless a sale is in the near future you don't stand to get anything inhear futue anyway? And if you are not on title  you creditors may have weak claims as to title and no claims as to estate?

And if 2 sibs are "cooperative" they can be sure to  slow down a sale/distribution to skirt the 180 day issues?

Its probably way too late for you to properly disclaim--but that may not matter--as nothing may be due you in context of your post?

 

I understand the confusion.  This is what happens when you are the youngest and no one tells you anything outside of texts and Facebook postings.  Quite a disenchantment.

 

Present Day: 

• 2 oldest sibs own the property as per transfer of title once the will was executed
• The Will states that should the property be sold that the proceeds are to be divded among the 4 siblings.
• Home is not under contract and will come off the market at month's end in which it will enter 12-18 month lease to rent
• I plan to file C7 this month

Current filing papers (drawn up; not filed) list under item 20 on Schedule B:  1/4 interest in estate of deceased parent, decendent.

These papers were drawn up under the expectancy that the prior contract on the property was going to close shortly after my filing. Now that is not happening.

Regardless of sale or anything, do I now need to still announce my interests?  Won't the Trustee look back on this for years to come and just wait for something to trickle into my name?  Eventually, this property will sell.  Maybe next year.  Maybe two years, but it will indeed sell.

 

The plot thickens...

bigbipper:

Regardless of sale or anything, do I now need to still announce my interests?  Won't the Trustee look back on this for years to come and just wait for something to trickle into my name?  Eventually, this property will sell.  Maybe next year.  Maybe two years, but it will indeed sell.

Talk to a bankruptcy attorney.

I believe if you recieve money within 180 days of filing bankruptcy, the money becomes part of the bankruptcy and has to be used to pay down creditors. VERY IMPORTANT THAT YOU VERIFY MY COMMENT WITH A BANKRUPTCY ATTORNEY.

Since you don't own the property and renting it out is not of your doing, I also don't think you have to reveal to the bankruptcy court that you expect to get money "some day." ALSO VERY IMPORTANT THAT YOU VERIFY THAT COMMENT WITH A BANKRUPTCY ATTORNEY.

Thank you, Jack.

I have been talking to my attorney and because he knows that my goal is to protect as much as possible, I now don't think he is acting in my best interest.  He wants me to reveal my stake in any down the road inheritance.

 

After 180 days of filing, is this all a moot point?

 

bigbipper:

I have been talking to my attorney and because he knows that my goal is to protect as much as possible, I now don't think he is acting in my best interest.  He wants me to reveal my stake in any down the road inheritance.

After 180 days of filing, is this all a moot point?

It appears that your attorney is correct about disclosing the inheritance.

I did some more checking and found the following paragraph online:

 

• According to bankruptcy law, if a debtor receives an inheritance within 180 days of filing for bankruptcy, that inheritance becomes the property of the bankruptcy estate. In this case a debtor will be required to disclose to the bankruptcy trustee and debtors that they received an inheritance. The bankruptcy law calculates the 180 days from the date of death of the person granting the inheritance. For example, if your uncle left you a $100,000; but you did not receive it until 2 years after he died, your inheritance could still become the property of the bankruptcy estate

 

Then I looked in the US Bankruptcy Code and found

TITLE 11 > CHAPTER 5 > SUBCHAPTER III > § 541. Property of the estate. http://www.law.cornell.edu/uscode/search/display.html?terms=inheritance&url=/uscode/html/uscode11/usc_sec_11_00000541----000-_combined.html . I'll quote just the part of it that applies:

• (a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
• (5) 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—
• (A) by bequest, devise, or inheritance;

. Seems to me, though, that (because of the word "and") both elements have to exist for the inheritance to become part of the bankruptcy estate. . 1 - You inherited "an interest" in the proceeds of the sale of the house when your mother died in 2008 so you have to disclose it. . 2 - If you receive the money from the within the 180 days from filing, it becomes part of the bankruptcy estate. If you receive it after the 180 days I think it doesn't become part of the bankruptcy estate. . There's a couple of gray areas that you should discuss with your bankruptcy attorney. . Is the rental income part of your bankruptcy estate?  If the will specifies that your inheritance is ONLY the proceeds from the sale of the property and you have no ownership of the property then I don't think so. Just make sure you provide a copy of the will to your bankruptcy attorney for review of its exact bequests. If you don't have a copy you can obtain one from your sibliings or from the probate court if they are recalcitrant. . If you had anything to do with the decision to rent out the property for 12 months the bankruptcy trustee could allege that you committed bankruptcy fraud by delaying receipt of the money beyond the 180 days. Discuss with your lawyer how you can avoid that issue. You might want to establish written documentation that you weren't involved in the decision while you can get it instead of expecting anybody to come forward later. . If you are thinking about disclaiming your inheritance, it appears that you would have to do it before filing your bankruptcy petition. In the following case decision the court found a post-petition disclaimer void. . http://www.vawb.uscourts.gov/Opinions/04-00263-5-Farrior,%20Charles%20R.-Krumm.pdf . By the way, if you aren't sure about what's going on with the probate of your mother's estate (and it certainly appears that you aren't) don't rely on texts and facebook. Go visit the probate court and get copies of all the documents in the file and take them home with you for you and your bankruptcy attorney to review. . You don't want to file bankruptcy just "thinking" you know what happened when you might not "know" exactly what happened. _________________________________________________________________________________________________________ You'll have to forgive how all that ran together. There is something screwy with the formatting that I can't fix.

I hope this comes out better:

bigbipper:

I have been talking to my attorney and because he knows that my goal is to protect as much as possible, I now don't think he is acting in my best interest.  He wants me to reveal my stake in any down the road inheritance.

After 180 days of filing, is this all a moot point?

It appears that your attorney is correct about disclosing the inheritance.

I did some more checking and found the following paragraph online:

 

·    According to bankruptcy law, if a debtor receives an inheritance within 180 days of filing for bankruptcy, that inheritance becomes the property of the bankruptcy estate. In this case a debtor will be required to disclose to the bankruptcy trustee and debtors that they received an inheritance. The bankruptcy law calculates the 180 days from the date of death of the person granting the inheritance. For example, if your uncle left you a $100,000; but you did not receive it until 2 years after he died, your inheritance could still become the property of the bankruptcy estate

 

Then I looked in the US Bankruptcy Code and found

TITLE 11 > CHAPTER 5 > SUBCHAPTER III > § 541. Property of the estate.

http://www.law.cornell.edu/uscode/search/display.html?terms=inheritance&url=/uscode/html/uscode11/usc_sec_11_00000541----000-_combined.html

.

I'll quote just the part of it that applies:

·    (a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:

·     

·    (5) 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—

·     

·    (A) by bequest, devise, or inheritance;

.

Seems to me, though, that (because of the word "and") both elements have to exist for the inheritance to become part of the bankruptcy estate.

.

1 - You inherited "an interest" in the proceeds of the sale of the house when your mother died in 2008 so you have to disclose it.

.

2 - If you receive the money from the within the 180 days from filing, it becomes part of the bankruptcy estate. If you receive it after the 180 days I think it doesn't become part of the bankruptcy estate.

.

There's a couple of gray areas that you should discuss with your bankruptcy attorney.

.

Is the rental income part of your bankruptcy estate?  If the will specifies that your inheritance is ONLY the proceeds from the sale of the property and you have no ownership of the property then I don't think so. Just make sure you provide a copy of the will to your bankruptcy attorney for review of its exact bequests. If you don't have a copy you can obtain one from your sibliings or from the probate court if they are recalcitrant.

.

If you had anything to do with the decision to rent out the property for 12 months the bankruptcy trustee could allege that you committed bankruptcy fraud by delaying receipt of the money beyond the 180 days. Discuss with your lawyer how you can avoid that issue. You might want to establish written documentation that you weren't involved in the decision while you can get it instead of expecting anybody to come forward later.

.

If you are thinking about disclaiming your inheritance, it appears that you would have to do it before filing your bankruptcy petition.

In the following case decision the court found a post-petition disclaimer void.

.

http://www.vawb.uscourts.gov/Opinions/04-00263-5-Farrior,%20Charles%20R.-Krumm.pdf

.

By the way, if you aren't sure about what's going on with the probate of your mother's estate (and it certainly appears that you aren't) don't rely on texts and facebook. Go visit the probate court and get copies of all the documents in the file and take them home with you for you and your bankruptcy attorney to review.

.

You don't want to file bankruptcy just "thinking" you know what happened when you might not "know" exactly what happened.

Wow, Jack.  I am humbled that a complete stranger is willing to help me in what is turning into a dire situation.  Bravo, gentlemen.   Who said humanity is dead?  My sincere appreciation for all your posts and effots.

The rental income will be in cash and the lease will be in the name of my oldest brother.  I don't think I would have to report it as future earnings.

I have already been advised against renouncing my right to inheritance.  This we already visited.

Yes, I think it is time I see the official document.  Is it something that can be requested online?

bigbipper:

The rental income will be in cash and the lease will be in the name of my oldest brother.  I don't think I would have to report it as future earnings.

You wouldn't if you didn't get any of it.

bigbipper:

Yes, I think it is time I see the official document.  Is it something that can be requested online?

Probably not.

Best to visit the probate courthouse (surrogate court), pay the copy fee, and get the whole file on the spot. You'll not only want a copy of the will, but the rest of the documents will show you the progress of the probate.

I also suggest you get a copy of the deed to the house and make sure it's actually in the names of your two siblings. You can get that from the county recorder (county clerk or land records office where deeds are recorded).

There is nothing better than having actual documents in hand.

There is nothing worse than relying on what anybody tells you.

 

I need to chime in here. I commend AJ’s attempt to think through the provisions of the Code however he has missed the important distinction between a pre petition property right and a property right that arises post petition as an inheritance:

OP became entitled to the inheritance prior to filing bk. OP has a receivable - he is owed either money or property. It does not matter that the source of the receivable is from an inheritance. It is a receivable and, as such will be an asset of the estate under 541(a)(1), having nothing to do with 541(a)(5).

On the day the case is filed the Trustee will step into OP’s shoes and the right to collect the receivable will belong to the Trustee. If OP does not want to lose control over the asset OP better not file a Chapter 7. I have handled issues just like this many times and know from experience that the asset will be taken by the Trustee if there is a buck to be made.

While not a case out of NY, take a look at In re Schmidt, 362 B.R. 318 (Bankr. WD Tex, 2007):

The debtor's mother died on June 27, 2006. The will, executed back in 1998, named the debtor as a beneficiary and probate was begun in August, 2006. Debtor filed Chapter 7 on September 29, 2006 before the will was completely administered. One day after filing bk the debtor attempted to "disclaim" her portion of the inheritance using a Texas law that permitted such a disclaimer. The following is taken from the case:

"There is no question but that, as of the date of the filing, the debtor had a testamentary interest in her mother's probate estate, constituting. . . an equitable interest in property as of the date of filing (under 541(a)(1)). . . In Texas (and I will assume also in NY), as a general matter, title to property of a decedent passes as of date of the date of death to the beneficiaries, subject to the claims of creditors of the decedent. Thus, as a matter of state law, on the date of the bankruptcy petition in this case, the property of the bankruptcy estate included the debtor's testamentary interest as an heir and named beneficiary under the will of her deceased mother."

 

In this Texas case the Court did not buy the debtor’s argument that her exercise under State law to renounce the inheritance was effective since she exercised that right after filing bk. Property of the estate under 541(a)(1) is as of the moment the case was filed and, as of that moment, the debtor no longer possessed a right to disclaim.

 

_________________________

541(a)(5) comes into play when the right to receive an inheritance materializes within the requisite 180 days. Such a right arises upon the death of the decedent. It has nothing to do with when the funds are received. It has everything to do with when the debtor’s right to receive materializes. Since, as a general rule, a will speaks upon death, if the decedent dies within 180 days of the petition date the right to the inheritance, and thus the inheritance itself - even if it takes 20 years to get - becomes property of the estate. This is why I jokingly tell my clients that their rich uncle cannot kick the bucket until the 181^st day after the filing date.

As we sit here today, OP has a property right. If he does not receive it before filing bk and/or is unable, under State law, to effectively disclaim it before filing bk then that right will transfer to the Trustee. Even if he can, under state law, disclaim it, I have no clue if such action will be recognized by a bk court sitting in NY.  This he needs to discuss with his attorney.

Des.