How Does Inheritance Income Affect NJ Bankruptcy Rulings?

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When preparing to file for NJ bankruptcy, it is very important to take a full and detailed account of all of your assets. This does not just include current assets, but future assets as well, e.g. any potential inheritances. Knowing how your inheritance income affects bankruptcy filings in New Jersey is important to understanding your rights while filing for bankruptcy.

You may have advanced notice of an inheritance if you are aware of your inclusion as a beneficiary in a will. Otherwise, an inheritance could come as a surprise. You could be included in a will without your prior knowledge or you could receive the inheritance through normal operation of law in the event that there was no will at the time of death. Regardless of how you came to receive the inheritance, it is important to understand if the inheritance income is part of your bankruptcy estate or not so you can make sound financial decisions.

Typically, after bankruptcy is declared, all assets and liabilities become part of the bankruptcy estate. The bankruptcy estate is then administered by a bankruptcy trustee. There are four ways to file for bankruptcy in NJ, but most bankruptcy claims fall under Chapter 7 or Chapter 13. Under Chapter 7, the trustee is responsible for determining which assets the debtor can liquidate (sell) to pay their creditors. Under Chapter 13, the debtor is not required to give up personal property in order to pay off debts. Instead, the debtor will be required to make monthly payments that will be split between all of their creditors. How much a debtor pays under the Chapter 13 payment plan will depend on the amount of non-exempt interest in real and personal property.

That being said, there are certain exemptions when it comes to whether or not an inheritance will be included in the bankruptcy estate. Debtors are entitled by law to exempt a certain amount of property from their bankruptcy filing. Under Chapter 7, a debtor is entitled to keep some specified property from being liquidated to pay creditors. Under Chapter 13, a certain amount of the debtors’ assets can be exempt from inclusion in determining a payment plan. There are different exemption amounts depending on the type of asset in question. Congress periodically makes changes to these amounts to account for changes in inflation so it is important to keep up with these changes. While there is no separate exemption for inheritances, debtors can include any inheritance income under their designated “wildcard exemption” (11 U.S.C. §522(d)(5)).

Is your inheritance eligible to be included in your bankruptcy estate?

All assets owned at the time of filing are part of the bankruptcy estate. Pursuant to NJ bankruptcy laws, property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” The timing of when an inheritance becomes part of a bankruptcy estate is crucial to understand and varies depending on what kind of bankruptcy the debtor is filing.

Under Chapter 7 bankruptcy, an inheritance is considered part of the bankruptcy estate if the debtor becomes entitled to the asset within 180 days of the date bankruptcy was filed. This is to include property which the debtor becomes entitled to acquire by inheritance. The 180 days starts the day bankruptcy is filed and ends with the date of death. The time frame in which the debtor receives the inheritance does not matter. The date of death is legally considered the date on which the inheritance enters into the debtor’s possession and therefore enters into the bankruptcy estate. This is to deter preemptive bankruptcy filings where the debtor intends to rush a bankruptcy claim in order to avoid having the inheritance affected.

Under Chapter 13 bankruptcy, any inheritance received after the bankruptcy filing date but before the case is closed or dismissed is considered property of the bankruptcy estate, regardless of the time it takes to close a case. Under Chapter 13, there are specific legal statutes designed to expand what is considered bankruptcy estate property in order to include inheritance that is acquired beyond the 180-day limitation observed under Chapter 7. Any inheritance acquired during the entirety of the bankruptcy case will be subject to the terms of the repayment plan.

It is essential in any bankruptcy case to determine which assets are protected and to acquire adequate pre-filing planning and analysis for your specific bankruptcy case. Whether you need to eliminate your debt in its entirety under Chapter 7 or you need to reorganize your payments to creditors under Chapter 13, the qualified and experienced attorneys at Veitengruber Law are here to help. If you are unsure of your rights, please call us for a consultation.

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I Received an Insurance Settlement: Can I Still File for Bankruptcy?

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If you recently received a substantial insurance pay-out, you were undoubtedly involved in some kind of accident. Perhaps you had a car accident, obtained an injury at work, or were hurt during a mishap that took place on the privately owned property of an individual or business. If your injuries were significant enough to file a lawsuit, it’s likely that you were unable to work very much (or at all) after your accident or injury.

Assuming that your injuries have prevented you from generating enough income to satisfy your bills, you may have quite a few overdue utility payments, car payments and/or past due mortgage or rent payment(s). Waiting for an insurance settlement can feel interminable and never-ending during the waiting process. Trying to get by on next-to-nothing is not only highly stressful; it’s usually virtually impossible.

As your situation deteriorates more and more, you may begin to contemplate filing for bankruptcy. After all, you have no idea how long it will be before you receive a settlement check from your insurance company, and your creditors are getting very impatient! Learning about filing for New Jersey bankruptcy, you may start to feel that it is the best option for a fresh start, eliminating many of the debts that are preventing you from being able to live any kind of normal life.

You’ve done your due diligence in making an appointment with a NJ bankruptcy attorney and have gathered all of the necessary financial paperwork. Essentially, you’re ready to open your bankruptcy case when….. you receive your insurance settlement money.

A rush of mixed emotions – should I use the insurance money to catch up on late bills and cancel my bankruptcy case?

Most debtors who are so deep in debt simply because they were injured are afraid to file for bankruptcy for fear of losing the insurance settlement money they received. For example, if you were injured at a local store when a heavy item fell, crushing your foot and eliminating your ability to work at your cashier job, can you still file for bankruptcy if and when you receive the insurance pay-out that you actually deserve?

New Jersey will allow you to decide whether to use the state or federal exemption laws to protect your settlement. You must choose one or the other, though, and cannot piecemeal an exemption plan that uses both state and federal exemption laws.

If you take a look at the NJ exemption that would help you protect your settlement money, you’d be looking at the New Jersey wildcard exemption, which allows debtors to keep up to $1,000 of any property or settlement money.

Conversely, the federal bankruptcy exemptions are much more beneficial when it comes to protecting settlement funds. If you decide to use federal exemption laws, you’ll be entitled to keep up to $22,975* in personal injury settlement payments. Additionally, you’ll be able to protect damages for lost wages, wrongful death awards and can use a federal wildcard exemption that protects any property or money of your choosing up to $1,225*.

There are many more details involved in filing for NJ bankruptcy when you’ve been injured and are anticipating an insurance settlement or other financial windfall. As every bankruptcy case varies so widely, you should direct case-specific questions to a local bankruptcy attorney who is willing to discuss your case with you free of charge.

Image credit: Christian Eberle

*As these numbers are subject to changes, please clarify specific exemption amounts with your attorney.

Is My Workers’ Compensation Settlement Safe from Creditors?

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Carrying workers’ compensation insurance is a requirement for employers in every state except Texas. This type of insurance is a safety net, in a way, that protects employers from being sued and potentially having to pay out large sums of money in the event of an accident or injury in the workplace.

If you’ve been injured at work and have received a workers’ compensation settlement, you may potentially still be out of work due to your injury. In many cases, even with a workers’ compensation settlement, workplace injuries lead to financial strife.

Extended time off work in order to heal or to receive surgery obviously means no wages earned during that time. Sure, your workers’ “comp” will definitely help, but it will not replace your entire income. This frequently leads to missed mortgage or other important payments. Ultimately, you may decide to file for bankruptcy in order to get rid of the past due debts that have accrued.

If I file for bankruptcy in NJ, will I be able to keep my workers’ compensation settlement money?

This is a pressing question for anyone in this particular situation. After all, the money you received as a result of your workplace accident may have been the only thing keeping you above water. The answer to the above question is almost an unequivocal “YES.”

When a person files for bankruptcy in any state, there are state “exemptions” – assets that are protected from liquidation or distribution to creditors to pay back some of the debts owed. Other examples of NJ bankruptcy exemptions include social security disability benefits, life insurance benefits (usually), retirement benefits and unemployment compensation.

Also on that list of exemptions in New Jersey is workers’ compensation settlement funds. To be clear, anything listed as exempt cannot be taken from you if you file for bankruptcy.

Although safe from creditors, any monies received as part of your workers’ comp settlement must be carefully kept in a designated account into which you only deposit money paid to you for workers’ compensation.

The reason it is so important to keep your exempt cash assets in their own account is because of a funny word that bankruptcy judges don’t like to see: commingling. Now, even though commingling may give you mental images of a long-past dinner party where you didn’t know anyone, in financial terms (at least in terms of bankruptcy in NJ), it means certain death.

Not yours, mind you, but if you allow your exempt monies to commingle with funds you receive from other sources, you’ll cause your protected settlement money to lose its exemption status, and you’ll have to say goodbye to it. If you want to keep your workers’ comp settlement, take every precaution to ensure that it lives in its own private bank account with absolutely NO funds from any other source.

How will anyone know if I have allowed my funds to commingle?

Granted, it may feel like you can simply tell the bankruptcy trustee that you’ve kept your money separated by source, even if there have been times when it was just easier to allow commingling to occur. Know this: if you fail to keep your workers’ comp funds completely separate, the trustee WILL find out about it. Every deposit made into every account you own will be scrutinized. You will need to keep a detailed paper trail that clearly shows the origin of every single cent kept in all of your bank accounts.

While you do have to be extremely careful in order to protect your exempt assets in bankruptcy, as long as you follow the rules, you’ll be able to keep all of your New Jersey workers’ compensation money.

Image credit: Anthony Easton

Will I Lose Everything if I File for Bankruptcy?

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A common misconception is that filing for bankruptcy means you will lose all of your personal property in exchange for wiping your debts clean. Unfortunately, this causes some people to drag their heels about filing a bankruptcy petition, leading them into deeper and deeper piles of debt.

While the fear of “losing everything” due to a bankruptcy is very common – it’s unfounded, regardless of whether you’re filing for Chapter 7 or Chapter 13. Bankruptcy laws have been created with the end goal of helping struggling debtors get back on their feet. Taking everything they own would be counter-intuitive to that goal, as it would leave them with no debt, but no assets either.

Filing for bankruptcy DOES NOT mean you will lose your home. Additionally, you will almost always be able to keep at least one vehicle, so that you can continue to work.

What Happens in a Bankruptcy Case?

If you file for Chapter 7, your case will be assigned a bankruptcy trustee. This person is not working for or against you; they are working for the Department of Justice. Their job is to ensure that your assets are liquidated properly and that your creditors are paid off fairly, all while following federal and state bankruptcy guidelines.

While your trustee is assigned to liquidate (sell) your assets (property), there are limitations in place for what can and cannot be sold in order to pay off your debts. These limits are set so that you will be left with a place to live, clothes to wear, and furniture to sit on. You will typically be allowed to keep all or most of your household items as well (dishes, toiletries, tools, artwork and other home decor) unless they are unusually valuable.

Some states have what is known as a “Homestead Exemption Policy.” This policy varies from state to state in how much home equity you are allowed to exempt (keep). New Jersey does not have a Homestead Exemption Policy, but debtors who file for bankruptcy in NJ are allowed to use the federal bankruptcy exemptions, which will protect some of your home equity.

Married couples in NJ may be allowed to double the federal exemption amount. Also, if you and your spouse own your home jointly, it may be completely exempt, as long as the outstanding debts you are seeking relief from are not joint debts. This will help married debtors if only one party has a lot of debt, and only if that person files for bankruptcy alone and not jointly with his/her spouse.

If you are filing for Chapter 13 bankruptcy, the ability to exempt your home equity will directly affect how much money you’ll be required to pay your creditors. Your trustee will not liquidate your assets in a Chapter 13, but will add up the value of your exempt vs nonexempt property. The value of any nonexempt property is what you will be required to pay to your creditors, so exemptions will lower your payment amount.

Regardless of whether you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, the important thing to remember is that you will not lose everything. The goal of filing for bankruptcy is to help get you to a stable financial future.

 

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