Inheritance After a Bankruptcy

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What happens if I get an inheritance after a bankruptcy? This is a very good question, and the answer depends mostly on two things: timing and the type of bankruptcy you have filed.

Timing

There are two dates that are important considerations when it comes to inheritance after a bankruptcy. The first date is the date that the person who has left you an inheritance died, and the second date is the date you filed your bankruptcy. Regardless of the type of bankruptcy you have filed (Chapter 7 or Chapter 13) the number 180 days after you filed bankruptcy is key.

As an example, if your inheritance will be coming from your father, and he died three months after you filed bankruptcy the inheritance you receive (less any approved exemptions) will be considered an asset of your bankruptcy estate and used to discharge your debts. Note that this is true even if you don't actually receive the inheritance until 11 months after your father died; it is the death date that is important.

After 180 Days

Once 180 days have elapsed since you filed for Chapter 7 bankruptcy and then someone who is leaving you an inheritance dies, that inheritance is not considered part of your bankruptcy estate and the proceeds of the inheritance are not automatically added to the estate to pay your creditors.

Conversely, because Chapter 13 bankruptcy is a debt reorganization and court supervised debt repayment process that usually lasts for three to five years, if you receive an inheritance after the 180 day mark your trustee can petition the court to have your inheritance (less any approved exemptions) added to your bankruptcy estate. This allows the additional funds from the inheritance, whether cash or property to be liquidated to be used to pay creditors.

One reason why the 180 time frame was included in the Bankruptcy Code was to prevent people from filing bankruptcy before they received an expected inheritance thinking to shelter those funds from creditors. With the six month period after bankruptcy pulling in any inheritance to the bankruptcy estate, it makes it unlikely that a debtor would file bankruptcy for the purpose of not having to use an inheritance to pay off creditors.

Seek Legal Advice

If you are considering bankruptcy, contact an experienced bankruptcy attorney who can answer your questions and help you to make informed decisions. If you are a person who may be leaving an inheritance to someone else, you should seek the advice of an attorney about leaving your inheritance to a trust rather than a relative who you suspect may be facing bankruptcy.

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