Bankruptcy and Inheritance

If you are in the mist of filing for bankruptcy or have actually already filed and have recently come into an inheritance, you may be wondering what will happen to that money.  Will you lose it? Does it need to be reported? Let’s look at what will happen in both a Chapter 7 and 13 Bankruptcy and how the timing of the inheritance will come into play.

The Timing of the Inheritance and Type of Bankruptcy 

If a person receives an inheritance during a bankruptcy filing, that inheritance might become part of the bankruptcy estate. This is determined by the timing of the inheritance, which is divided into two different types.

  • Inheritance Gained within 180 Days of Bankruptcy – If a filer receives an inheritance within 180 days of the initial bankruptcy filing, they must usually:

    1.  Disclose the assets to the bankruptcy court and trustee. Failure to do this could be considered fraudulent and stop the bankruptcy proceedings.
    2.  In a Chapter Seven case, the inheritance will become part of the bankruptcy estate, but it may be subject to an exemption. The trustee to your case will be able to determine the date and exemption status of the money.
    3.  In a Chapter Thirteen filing, an inheritance may slightly increase the amount a debtor must pay to creditors, although exemptions may also play a role. If you receive an inheritance while you are in the midst of a Chapter 13 bankruptcy repayment plan, most courts will require that you pay this amount into your Chapter 13 plan. Again, your trustee assigned to your case will be able to tell you if the money is exempt or not.

 

  • Inheritance Received After 180 Days Have Passed

    If filers obtain an inheritance after 180 days have passed since their initial filing, the interplay between inheritance laws and bankruptcy may be very different:

    1.  In Chapter 7, neither your trustee nor your creditors will probably be able to touch your inheritance.
    2.  In Chapter 13, circumstances may vary. The bankruptcy judge may allow the inheritance to be exempt from the bankruptcy estate, but this depends on the circumstances of your case.

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