Nobody wants to think about both bankruptcy and end-of-life planning at the same time, which is understandable. However, you should at least be aware of how the latter can impact the former so that you can be prepared and plan accordingly.
Can bankruptcy affect your estate planning?
Yes. Whether you file for Chapter 7, Chapter 11 or Chapter 13, there are ways in which bankruptcy can harm your estate plan. Bankruptcy does not go away if you pass away, and if you have a pending case when you die, your beneficiaries may not access your estate until your bankruptcy case is over.
Remember that if you file for Chapter 7 bankruptcy, your assets pay off the people you owe money to. If you don’t have enough to satisfy what you owe, that part of the debt is discharged.
In the case of other types of bankruptcies, you work with your creditors to repay what you owe. Your case is open during the entirety of this time, whether one or five years. If you pass away, your representative will have to take your place in managing the case.
Other ways bankruptcy can affect your estate planning
If you pass away and your beneficiary files for bankruptcy shortly after your death, they must disclose that they received that money or assets from you. Like the above scenario, your beneficiary will have to use what you left them to pay off their creditors or may be considered fair play in the repayment plan with creditors.
Are there ways to prevent these scenarios from happening?
Perhaps. It is possible to legally structure your estate plan to take into account bankruptcy. If you have further questions about how this can be done, it is advisable to seek the assistance of an experienced professional in this area.
Both bankruptcy and estate planning can be complex subjects, but you are not alone. It is wise to understand the ramifications of any actions you take concerning your finances, which is why it is advisable to have the necessary knowledge to make the best decisions for yourself and your loved ones.