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How does an inheritance impact bankruptcy?

When one files a Chapter 7 bankruptcy, life gets divided into pre-petition (those assets and creditor claims in existence on the filing date which are part of your bankruptcy) and post-petition (those assets and claims that you accrued after filing). For instance, if you win the lottery the day after filing, it is yours to keep regardless of your creditor claims. If you caused someone grievous injury after filing, the damages resulting therefrom are not dischargeable.

In only one instance is there a general exception to this rule . . . in the case of an inheritance resulting within 180 days of the debtor’s Chapter 7 filing.

As noted above, the question of whether or not an inheritance is part of a bankruptcy estate is determined by when the bankruptcy case was filed as well as when the inheritance was gained.  Let’s look at some of the guidelines about inheritance and bankruptcy.

Inheriting money before bankruptcy can make it difficult to qualify for bankruptcy protection. If your assets are greater then the exemptions you are entitled to, the possibility exists that you may be at risk of losing your assets to your creditors. In a Chapter 13 case, even after the bankruptcy case is filed, most assets you acquire during the bankruptcy case will be part of your bankruptcy estate, including property you purchase or receive as a gift, money you earn, and certain other rights you acquire. This is not true in Chapter 7 – most property you acquire after you file is yours to keep, with a few exceptions. One of those exceptions is an inheritance!  That means that if you receive an inheritance within 180 days after filing your petition, it will be part of your bankruptcy estate in both Chapter 7 and Chapter 13 bankruptcy.

If the inheritance is received after the 180 day period the results may be different.  The law is different if you received your inheritance after 180 days of filing your case. In a Chapter 7 case, any windfalls (like an inheritance) you acquire the rights to after the 180 days do not have to be turned over to the bankruptcy trustee. However, in a Chapter 13 case, the bankruptcy trustee may argue that the inheritance should be part of your bankruptcy estate, regardless of whether you received it after the 180-day period. As always it is best to consult a qualified bankruptcy attorney to help you navigate these two events.