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How Bankruptcy Can Affect Your Estate Plan

When it comes to bankruptcy, there are two ways in which it can significantly affect your estate plan. First, you may file for bankruptcy and die while your case is pending. The second is if one of your beneficiaries files for bankruptcy just before you die.

Planning for either of these events is complicated, but not impossible – especially with experienced legal guidance supporting you. Keep reading to learn more about this topic and contact Nguyen Law Group if you need assistance with bankruptcy, estate planning, or both.

When Someone Dies with a Pending Bankruptcy Case

Unlike certain other legal matters, bankruptcy doesn’t stop when the filer dies. If someone passes away with a pending bankruptcy case, it must conclude before their loved ones can deal with the affairs of their estate. This can add to the probate or trust administration process, which can already be time-consuming.

In most cases, the type of bankruptcy – Chapter 7 or Chapter 13 – will have the greatest effect on timing.

Dying During Chapter 7

Chapter 7 is the most common type of bankruptcy used by consumers. This involves the liquidation of someone’s assets and using the proceeds to pay off creditors. Most of the time, liquidation doesn’t completely satisfy the debt, so a discharge is issued for the remaining debt.

If you pass away during your Chapter 7 case, the executor or trustee of your estate will step in. This person will handle the case in your absence, and most of the proceedings will go on as if you didn’t die. If there are any remaining assets after liquidation, such as any exemptions you or your representative claimed, then these can be divided among your loved ones according to your will or trust instructions.

Dying During Chapter 13

Dying during Chapter 13 bankruptcy can be a little more or less complex, depending on the circumstances at hand. This is a debt reorganization bankruptcy, and filing for it implies that you intended to participate in a debt repayment plan for three to five years.

Your case remains open while the plan is in effect, so dying in the meantime can present obstacles that your personal representative must overcome.

Generally speaking, your estate administrator will have a few options available:

  • Proceed with the case as normal
  • Convert the case into a Chapter 7 case
  • Dismiss the case

Again, what happens in this situation depends on the circumstances of your case. An experienced bankruptcy lawyer with experience in estate planning, such as our attorney at Nguyen Law Group, can offer the insight you need.

When a Beneficiary Files for Bankruptcy

Bankruptcy can disrupt your estate plan even if you’re not the one in need of debt relief. If a beneficiary of your plan files for bankruptcy within 180 days of a relative’s death, any inheritance they may receive can become part of the bankruptcy case.

If you happen to be in this situation, you can protect your inheritance by claiming exemptions for it. Just keep in mind that depending on its size and other exemptions you intend to claim, you may not be able to safeguard all of it.

Bankruptcy & Estate Planning – We Can Assist with Both!

Nguyen Law Group is a dynamic bankruptcy law firm that can also assist clients with estate planning matters and issues that cover both of these areas of law. Our experienced attorney has the knowledge and skill necessary to provide sensible advice and sophisticated solutions to help you with your legal problem.

For more information about our support, contact Nguyen Law Group online now.