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Chapter 7 bankruptcy and estate planning needs

There are a multitude of reasons that lead Washington residents to seek bankruptcy protection. One of the lesser known motivations involves estate planning. When an individual is expected to receive a substantial inheritance, filing for Chapter 7 bankruptcy may be a wise financial decision. As with so many financial matters, timing is everything when it comes to bankruptcy and estate planning.

When an individual is overwhelmed with debt and receives an inheritance, his or her creditors have the right to pursue inherited wealth to make good on those debts. That can mean the partial or even total loss of an individual's inheritance. Avoiding that outcome requires advance planning, and is a process that should involve both the person making estate planning decisions and the prospective heir.

Bankruptcy should always be reserved as a last resort option. Every effort should be made to fulfill one's financial obligations prior to considering bankruptcy relief. However, there are certain circumstances under which no amount of motivation or effort is sufficient to repay outstanding debt. In such cases, Chapter 7 bankruptcy can eliminate many financial obligations well in advance of an inheritance.

Inherited wealth is generally a gift of love that is passed down from one Washington generation to the next. The intention is for the heir to have access to those funds to improve his or her life. Losing in inheritance to creditors is never an intended outcome. With proper planning, Chapter 7 bankruptcy can help ensure that an inheritance is accessible to the intended recipients, regardless of past financial distress.

Source: pasadenajournal.com, "The Pitfalls of Joint Tenancy as an Estate Planning Tool", Marlene S. Cooper, Sept. 13, 2017

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