Dear To Her Credit,

I see that you must report inheritances up to 180 days after you file bankruptcy. What if you inherit after the 180 days? Do you lose the money? 

-Mary

Dear Mary,

If you inherit money within 180 days of filing for bankruptcy, according to federal law, the money can be used to pay off your creditors. (I wouldn't call that "losing" the money. After all, it is being used to pay your debts.)

If you inherit money 181 days or more after you file, it's a different story. You could inherit $1 million, and it would be of no concern to the bankruptcy courts.

With so much riding on an exact number of days, it's important to keep straight exactly which dates count. It doesn't matter when the bankruptcy or the estate of the person who died is settled. The clock starts ticking the day you file for bankruptcy with the court, and it stops the day the person who has left you something in his or her will dies.

If you are thinking about filing for bankruptcy, but there's some possibility you may come into an inheritance within the next six months, you are in a bit of a quandary. You could file for bankruptcy now, but if you get a substantial inheritance right after you pay legal and filing fees and go to all that trouble, the money you inherit will be used to pay your bills. If your inheritance is large enough to cover your debts, your bankruptcy may not even go through.

If you don't file for bankruptcy and you receive an inheritance, the scenario is somewhat better. You -- not the bankruptcy courts -- can determine the best use of your money. You decide who gets paid first and when. You have the satisfaction of knowing you made good on your debts. And, of course, you don't have a bankruptcy on your record.

Caution: If you get an inheritance, don't automatically use every dime of it to pay off all your debts immediately, however. Depending on your age, your dependents and other factors, you may need to allocate money to life insurance, an emergency fund, education or improving job skills and other financial goals. This would be an excellent time for you to take a money management course or have a trusted friend or relative help you sort out your financial priorities.

If you put off filing for bankruptcy and you don't inherit any money anytime soon, you're still left with your money troubles. In that case, you need to look at debt and your options for dealing with it. Bankruptcy is just one option for getting rid of debt. You may be able to negotiate some of your debts, especially if a large portion of the debt is from interest and penalties. Some creditors will give you a temporary reprieve if you are unemployed or have some other extenuating circumstances, such as illness in the family. Other options include selling something or improving your earning potential.

You always have choices, but sometimes it takes an outside person or someone who deals with difficult situations more often to help you see them all. If you need help sorting out your bills and what to do with them, I recommend finding a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

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