Filing for personal bankruptcy is a difficult decision that can affect many aspects of someone’s life. The need to take such drastic action can inspire people to look carefully at their circumstances and establish plans for their protection in the future.
After a bankruptcy discharge, people may work to rebuild their finances by increasing their income and keeping their debt levels low. They may also start looking to the future to make long-term financial plans. That process often involves estate planning. People often decide to either create their first estate plans or significantly revise their existing documents after a bankruptcy.
What impact can bankruptcy have on one’s estate planning?
People recognize the need for asset protection planning
Those who have experienced financial vulnerability often want to protect themselves, their assets and their family members from the possibility of a similar hardship in the future. A creditor’s ability to take legal action against high-value assets is often what forces people to file for bankruptcy. Therefore, those who have gone to great lengths to protect their resources previously can understand the value of planning to protect those assets proactively.
Asset protection planning helps preserve someone’s ownership interest in key resources should they encounter financial hardship again later in life. Their plans can also help preserve those assets after their death by potentially keeping them out of probate court. Those who engage in asset protection planning may feel more financially confident as they approach retirement and more sure of their legacy after they die.
People better understand medical expenses
Quite a few bankruptcy filings occur because of substantial medical debt. Therefore, having a plan in place to qualify for Medicaid in the event of medical issues in the future can be a common-sense move for someone who has previously filed for bankruptcy. Medicaid planning often entails many of the same steps as asset protection planning. People may create trusts or change the ownership of certain assets.
Depending on the type of bankruptcy someone files and the outcome of the process, they may need to make other adjustments to their estate planning documents, such as removing assets that they no longer possess from their documents. Taking the time to address future needs and a personal legacy by creating or updating an estate plan can be a smart decision for someone who has previously filed for bankruptcy. A plan can help someone ensure financial stability as they age and work to protect their legacy.