How to protect inheritance from creditors
Q. I’m about to receive an inheritance and would like to use part of it to buy a home. But I’m wondering if I’ll run into trouble over some unpaid medical bills from 24 years ago. Also, my credit score is zero. How can I protect this inheritance from creditors?
A. I can’t tell if your inheritance would make a dent in the debt to those medical providers. I also can’t tell if it’ll allow you to buy a home without a mortgage. But I’m sure that your credit score isn’t zero! Chances are that you have at least a minimal credit history, and that means you’ll have a credit score of at least 300 from FICO or 501 from VantageScore.
If your inheritance is sizable, then you can just purchase a home outright. You won’t have to worry about your credit score, but you will still have to deal with your creditors. But, for this column, I’m going to assume that your inheritance is not enough to buy a house, and that you’ll need decent credit to get a mortgage.
So let’s get started. Get copies of your credit reports so you’ll know for sure what your credit files contain. You can access your reports from the three major credit bureaus — Experian, Equifax and TransUnion — at AnnualCreditReport.com. (That’s the official site, so don’t use any other source.) Copies of your reports are free from each bureau once a year. Most medical providers do not submit information to the credit bureaus. However, once any unpaid medical bills have been sold or sent to collections, the debts are much more likely to appear on your credit reports.
Review your reports and make sure the information is accurate and not outdated. If you find anything that is not accurate, dispute the listing with the bureau that is reporting it. Once you know what is being reported, you will have a decision to make on how to move forward. Your 24-year-old debt is well past the statute of limitations for it to be collected through the courts. It’s also well past the 7-year period in which it can appear on your credit report. However, more recent medical debts may be reported on your credit reports and available for collection in the courts.
Next, look up your credit score. Depending on how low your credit score is, you may need to wait until your credit score has time to improve before seeking a mortgage. The difference in interest rates for a decent credit score and a bad one can mean paying tens of thousands of dollars more in interest for the life of the loan.
To protect your inheritance from the legal actions of your creditors, you will need to be concerned with any debts that have not passed the statute of limitations for collections in your state (six years in Michigan). Should your creditors decide to sue you in court for what is owed, it would be hard to hide a large inheritance.
Rather than trying to hide your good fortune, a better route may be to settle your debts. You can do this yourself, or you can use an attorney to negotiate on your behalf. Just be sure that you do not send any type of payment until you have the settlement agreement in writing.
Steve Bucci is the former president of Consumer Credit Counseling Service of Southern New England and the author of “Credit Repair Kit for Dummies.”