Dear Bankruptcy Adviser,
I ran up substantial credit card debts in which I was using them for online gambling and it forced my wife and me into bankruptcy (her name was on some of the credit cards). We filed Chapter 13 and have made payments since last March. My mother-in-law recently passed away and left my wife some cash and land. Now we are told that this can be brought into the bankruptcy, even though I was the one that created the debt. Is there any way that my wife's inheritance can be protected?
To my dismay, the answer is no. Your wife's inheritance cannot be protected. It doesn't even matter if you live in a non-community property state. You and your wife have filed jointly and thus you are both liable for the debt. If any assets come into your possession you are required to a) notify the court and b) utilize those assets for debt repayment.
However, as long as your case has not ever been converted from a different chapter, you can dismiss a Chapter 13 voluntarily. Basically, if you filed a Chapter 13, and never converted it, you can dismiss the Chapter 13 if you wish. Unfortunately, that does mean that all the creditors included in the Chapter 13 repayment plan will start calling again to collect. It is also possible that these creditors will include late fees and accrued interest into the balance you had prior to filing the Chapter 13.
Jeff, let's take the example back a step in order to help clarify what you need to do next and help other people in similar situations. Let's suppose you came to me prior to filing. I would ask, as I ask all my clients, "Do you think you might come into any inheritance soon?" and let's suppose you knew enough about your mother-in-law's situation to be able to say, "Yes." We do what we can to forestall your bankruptcy until you've received the assets.
Why? Here's the basic idea:
Chapter 13 bankruptcy allows you to protect everything you own, such as real estate, stock portfolios -- all the kinds of things that one might receive in an inheritance. In order for those assets to receive protection, therefore, you must receive them before you file. If you get them afterward, they will be devoted to settling with creditors. The problem is, no matter when the inheritance was received, whether pre- or post-petition, the court can decide that if you want to be in the Chapter 13, you have to pay over the value of those assets to the trustee.
So, Jeff, let's address your next step. First, find a qualified attorney; you might consider interviewing both a bankruptcy specialist and a will/inheritance expert. If possible you will settle the accounts where both you and your wife are liable and continue solo with the bankruptcy process. Don't ignore the possibility of refinancing your land, either.
My hope for you is that your attorney will negotiate a good settlement for you and you will have money left over. The question is, what will you do with it? Now is the time to take stock of your financial situation, get your house in order and turn over a new leaf. I'm sure some other cliches apply. But you're getting what may potentially be a fresh start and a leap ahead. If you think about it, that's pretty lucky.