Can I Disclaim an Inheritance to Prevent Creditors from Taking the Money? Bankruptcy Lawyer in Bordentown, NJ
When a loved one passes away, thoughts often turn to what heirlooms or assets they might leave behind. But inheritance isn’t always a smooth ride—family drama can ignite when heirs clash over what they believe is rightfully theirs.
What if you don’t even want the inheritance you’ve been left? Can you say no to your share?
Folks facing extreme debt may not view an inheritance as a financial windfall. Instead, it can throw a wrench into an already complicated financial situation—especially if they are planning to file, or have already filed, for bankruptcy. Veitengruber Law is an experienced bankruptcy and estate planning attorney in Bordentown, NJ. Here are our tips on disclaiming an inheritance.
What happens if I receive an inheritance while in debt?
When you are struggling to deal with a mountain of debt that you just can’t seem to chip away at, creditors are likely to come calling. If you have creditors constantly calling or threatening legal action—or if legal action is already in progress—you can be certain that those creditors will be very aware if you receive a sudden inheritance.
Once your creditors are aware of your inheritance, they will use every legal avenue available to them to secure the funds to pay back your debts. They can petition the court to have your bank account levied, allowing them to gain access to the funds in the account to settle your debts.
Here are some common reasons to disclaim an inheritance:
1. Safeguard from creditors
If you inherit money after filing for bankruptcy, it often becomes part of your bankruptcy estate. In Chapter 13, this may increase the total amount you must repay creditors. In Chapter 7, the trustee can use the entire inheritance to pay off your creditors.
When you inherit during bankruptcy, timing matters. If you inherit before filing for Chapter 7 or 13, or within 180 days after filing, the inheritance must be included in your bankruptcy estate. Even if you haven’t received the inheritance yet, it will still need to be included as part of your financial profile.
After the 180-day mark, Chapter 7 filers can keep new inheritances. Under Chapter 13 rules, a judge will decide whether the inheritance goes to creditors or alters your repayment plan.
2. Loss of family property
Physical property like a home or car can still be seized by creditors after you inherit it. For example, a creditor can place a lien on an inherited house and force its sale to cover your debts, wiping out your ownership. If you are inheriting a cherished vehicle or a beloved family home, this can be emotionally and financially devastating. By disclaiming your inheritance, the property can go to the next heir and ensure it remains in the family.
Some exceptions apply. The Homestead Exemption may protect your home if you live there and your equity is less than what you owe creditors.
3. Loss of benefits
If you rely on Medicaid, Veterans Aid and Attendance, SSI, or other programs, a sudden inheritance could knock you off the eligibility list—forcing you to spend down assets before help kicks back in.
How Do You Turn Down an Inheritance?
New Jersey law lets you refuse an inheritance—a process called disclaiming. But the way you do it matters.
Trying to reroute your inheritance to someone else to dodge creditors is illegal, and creditors can still chase the money under the Uniform Fraudulent Transfer Act.
The only sure way to keep creditors away is to fully disclaim the inheritance so it never becomes yours. The assets then skip you and go directly to the next beneficiary.
Can Estate Planning Help My Heirs Avoid Creditors?
To protect an inheritance, plan ahead. An estate planning lawyer can help you explore options like trusts, which are an efficient estate planning tool that can shield assets from creditors by keeping them in a separate legal entity until distribution.
Creditors can only reach funds from a trust after the beneficiary takes a distribution. By delaying withdrawals, the inheritance remains protected while any debt issues are resolved. You can even delay distribution until after bankruptcy is resolved.
You can also skip over naming loved ones with debt as heirs. Instead, you can leave assets directly to their children or other family. Creditors can’t touch inheritances left to those not responsible for the debt.
If you want to ensure that all your beneficiaries receive their inheritance, regardless of financial struggles, an experienced estate planning attorney can help.
Veitengruber Law has been serving the Bordentown community and beyond, offering valuable legal solutions for uncontrolled debt, estate planning, and bankruptcy. We understand the complexities bankruptcy adds to inheritance. Reach out today to discuss your options for getting out of debt.