What Happens if I Do Not Disclose an Inheritance to the Bankruptcy Trustee?

By James Sokolowski

A debtor commits bankruptcy fraud if he intentionally attempts to deceive the bankruptcy court and/or his creditors for his own financial advantage. He commits perjury if he intentionally lies under oath. If you file for bankruptcy, you must inform the court of all your assets and income. This includes an inheritance, even if you haven’t received it yet. The penalties for hiding assets can be harsh.

A debtor commits bankruptcy fraud if he intentionally attempts to deceive the bankruptcy court and/or his creditors for his own financial advantage. He commits perjury if he intentionally lies under oath. If you file for bankruptcy, you must inform the court of all your assets and income. This includes an inheritance, even if you haven’t received it yet. The penalties for hiding assets can be harsh.

Bankruptcy Basics

Most individuals file either a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 is a liquidation of assets. However, even though you're liquidating, you're still allowed to keep certain assets -- known as exemptions -- to give you a fresh start. These assets are limited in scope and value -- and include a certain amount of equity in your home and vehicle. If you have any nonexempt assets, such as stocks or a second home, they are sold to pay your creditors. Once all your nonexempt assets are gone, you receive a discharge of your remaining dischargeable debts. Debts that you cannot discharge include student loans, tax debt and child custody payments. In a Chapter 13 bankruptcy, you pay back part or all of your debt in a repayment plan; the value of your nonexempt property affects the size of your monthly payments. Once you complete your repayment plan, you receive a discharge of any remaining dischargeable debts.

Get a free, confidential bankruptcy evaluation. Learn More

The Whole Truth

You must tell the truth throughout the bankruptcy process. When you first file for bankruptcy, you must sign forms to affirm that all the information you provided is true and complete. Later, the trustee, who is the court-appointed individual who is charged with the administration of the bankruptcy, will question you under oath. You have a duty to inform the trustee of any significant financial changes like an inheritance. You must report your inheritance when you become aware of it; for example, if your grandmother dies while your discharge is pending, you must report the inheritance even if you won’t receive the property for a year or longer.

Difficult to Hide

When filing for bankruptcy, you must disclose all your income and assets in your bankruptcy petition, as well as in several other forms that you must complete. The trustee will examine your documents for any irregularities that might indicate fraud, such as hiding an inheritance. Anyone else can notify the trustee about your inheritance, including creditors, a former business partner, an employee or even your ex-spouse.

Penalties for Hiding Assets

The bankruptcy court can penalize you for not revealing your inheritance. If your case is pending when you’re caught, the court can deny you a discharge of your debts. That means you still owe all your debts -- and can never refile for bankruptcy protection from those debts. If the court has already granted you a bankruptcy discharge, a creditor or anyone else has one year to notify the court of your inheritance. The court can revoke your discharge, which has the same effect as denying a discharge. The trustee also can report you to the FBI for a criminal investigation for fraud or perjury. This could result in a sentence of five years in federal prison and a fine up to $250,000.

Timing

If you do the right thing and tell the trustee about your inheritance, the court will treat it like your other property. In a Chapter 7 bankruptcy, if you receive an inheritance within 180 days after you filed, it will go to the trustee to pay off your creditors. If its value is relatively small, it might be exempt. If it’s large, you may be able to pay off your debts without bankruptcy. However, if you inherit more than six more months after you file for Chapter 7, you likely can keep the inheritance, no matter how large it is. If you inherit while you are paying off your debt in a Chapter 13 bankruptcy, the trustee may decide that you must apply your excess funds or property to your payment plan, using it to repay your creditors.

Get a free, confidential bankruptcy evaluation. Learn More
Inheriting Money After Filing Bankruptcy in Illinois

References

Related articles

What Won't Be Dismissed in Chapter 7

In a Chapter 7 bankruptcy, often called liquidation bankruptcy, a debtor's non-exempt assets are sold to pay the debtor's creditors. Often, a debtor has no non-exempt assets -- or not enough to cover his debts. In such cases, the debtor's remaining, unpaid debts can be discharged, or erased, by the bankruptcy court. Not all debts, however, can be discharged.

Can I Inherit Money After Declaring Bankruptcy?

If you've filed for bankruptcy protection, receiving an unexpected windfall may not be a good thing. Whether you've filed a Chapter 7 or a Chapter 13, your creditors might receive at least some of the money if you come into an inheritance. It depends a great deal on the timing of the inheritance.

Can I Inherit Money During Filing Bankruptcy?

Personal bankruptcy is a legal process designed to allow individuals who have become overwhelmed with debt to get a fresh financial start. Receiving an inheritance shortly before or after filing for bankruptcy can be heartbreaking for anyone who does not wish to see their legacy used to pay off creditors. Depending on your state's laws, timing, and the extent of your other assets, you may be able to keep your inheritance through bankruptcy.

Related articles

How to Benefit From a Trust in Bankruptcy

If you learn you're the beneficiary of a trust soon after you file for bankruptcy protection, it may be too late to ...

Disclosing Money for a Bankruptcy

In most cases, you can pick and choose what personal information you share with others. When you file for bankruptcy ...

How Long to File Chapter 7 Bankruptcy If You Already Had One?

If you have previously filed for Chapter 7 bankruptcy, it is likely you will be entitled to file for a subsequent one. ...

Can You Inherit Money After Declaring Bankruptcy?

Filing for Chapter 7 bankruptcy temporarily protects you from creditors, and discharges those debts that the law allows ...

Browse by category