What happens if I receive an inheritance while in chapter 7 bankruptcy?

Chapter 7 bankruptcy is the most common bankruptcy filed by consumers in the United States, and is a liquidation of the debtor’s assets to satisfy the debtor’s creditors.  The bankruptcy trustee liquidates all of the debtor’s non-exempt assets and places the funds from the liquidation into the bankruptcy estate.  Creditors are then paid in their order of priority.  

In a Chapter 7 bankruptcy, any inheritance a debtor receives within 180 days from the filing of the bankruptcy petition is property of the bankruptcy estate.  The inheritance becomes part of the bankruptcy estate and, is used to repay your creditors. However, if you receive an inheritance 181 days after the filing of your bankruptcy petition, the inheritance does not become part of the bankruptcy estate, but is yours to keep in full.

If you have received an inheritance after filing chapter 7 bankruptcy, you must notify your chapter 7 trustee of the inheritance. The trustee then notifies all of your creditors about the inheritance, and your creditors are given a short period to file their proof of claim outlining how much you owe them.  After all your creditors have been paid in full and the bankruptcy administrative costs have been paid, you will receive any remaining balance from the inheritance.