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May I spend my inheritance prior to filing for Chapter 13?

Michigan consumers who are considering filing for bankruptcy may find the process confusing. A consumer recently wondered whether she may spend expected inheritance money during the period before filing for Chapter 13 bankruptcy. She explained her intention to buy a car and have some repairs done to her house.

Bankruptcy laws differ from state to state, but it will have to be determined whether the inherited money forms part of the bankruptcy estate. A bankruptcy attorney will be able to make an assessment according to the unique circumstances of the consumer. An inheritance received prior to bankruptcy or within a specified time following the filing will likely form part of the estate and will be added to the funds that will be used for settling outstanding debts. When a bankruptcy court suspects that the debtor spent unnecessary amounts of money shortly before a bankruptcy filing, they may decide to investigate. If the court determines that money was spent in order to purposefully reduce the available funds for paying debtors, your application to file for bankruptcy may be rejected.

Reasonable household repairs may be allowed, but consumers would be wise to discuss their intended expenses with their attorney to ensure that such payments are not considered shielding funds from creditors. With regard to buying a vehicle, the price will determine whether it will be frowned upon. The need for reliable transportation to get to and from work is reasonable, and the purchase of a modestly priced vehicle may be allowed. However, this may not be the time to buy a car -- or anything else -- on credit, as under Chapter 13 bankruptcy, your debts will not be discharged as in Chapter 7 bankruptcy.

Michigan consumers who are preparing to file for bankruptcy may benefit from the guidance of a bankruptcy attorney who will assess their circumstances and provide valuable advice, while protecting their interests at all times. Chapter 13 bankruptcy will require the consumer to draft a repayment plan over an extended period of up to five years. Once this plan is approved by the bankruptcy court, reduced payments will take effect, allowing the consumer to start building a stable financial future.

Source: creditcards.com, "Be careful with inheritance, spending before bankruptcy filing", Sally Herigstad, Sept. 20, 2014

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