Can I Inherit Money After Declaring Bankruptcy?

By Beverly Bird

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.

Your Bankruptcy Estate

Your bankruptcy estate is everything you own, as well as everything you have a right to own. This is important if you've filed for Chapter 7 protection, because your bankruptcy trustee has legal control over your estate. Unlike with a Chapter 13 proceeding, your trustee will sell or liquidate your assets and use the proceeds to pay your creditors. If you receive an inheritance, it usually belongs to your estate, so your Chapter 7 trustee can use it to pay your debts. However, there are some exceptions.

Timing Matters

The magic number that determines whether your inheritance is safe from distribution to creditors is six months, or 180 days. The calculation date is the date of death, not the date you receive the bequest. If the person who left you an inheritance died within the six months before you filed your bankruptcy petition, it's considered part of the estate. Another six months stretches forward from the date you file for bankruptcy as well. If the person dies 179 days after you file your bankruptcy petition, your creditors have a right to your inheritance, even if you don't actually receive it until after the deadline. However, if the decedent dies 181 days -- or more than six months -- after you file your petition, your inheritance is safe. It's yours to keep.

Get a free, confidential bankruptcy evaluation. Learn More

Duty to Report

You have an obligation to report your inheritance to your trustee, whether you've filed for Chapter 7 or Chapter 13. However, this doesn't mean that you must tell your trustee if you're a beneficiary in someone's will. Being named in someone's will doesn't technically give you a legal right to the bequest, because the person who wrote the will can change it at any time.

Making Use of Exemptions

Chapter 7 filers have the right to certain exemptions: certain amounts of property and assets that the trustee cannot liquidate to pay creditors. If your inheritance is less than your state's exemption amount, you can use your exemptions to keep it. You can also elect federal exemptions instead, if they're greater than your state's allowances and if your state allows you to make that choice. Certain assets are safe from liquidation at all, and they don't require that you claim an exemption to keep them. These include money left for you in certain trusts, rather than in a will. For example, if your inheritance is in a spendthrift trust, it's not part of your bankruptcy estate, so you can keep it.

Disclaiming Your Inheritance

Your other option is to disclaim your inheritance, if you don't want it to go to your creditors. This requires filing formal notice with the probate court that you don't want it. If you legally waive your right to it, it's not part of your bankruptcy estate. You can't disclaim your inheritance after you've filed for bankruptcy, but you can do it ahead of time, in anticipation of filing.

Chapter 13 Considerations

Chapter 13 bankruptcies are different. When you file for Chapter 13 protection, you enter into a multi-year plan to pay your creditors at least some of what you own them. Your property isn't at risk of liquidation unless you default on your payments. However, your trustee might calculate your inheritance into your repayment plan. If your inheritance is significant, receiving it could increase your payments, and the six-month time periods before and after filing don't apply.

Get a free, confidential bankruptcy evaluation. Learn More
Rules for Chapter 7 Bankruptcy & Inheritance

References

Related articles

Does Ohio Allow Beneficiaries to Disclaim Inheritances?

The law doesn’t force anyone to accept an inheritance, in Ohio or elsewhere. However, you can’t simply shake your head and walk away if you don’t want a bequest left to you by someone who has died. You must follow certain procedures to legally disclaim it, and you should read the decedent’s will first to determine what happens to your inheritance if you don’t accept it. It might end up going to an individual you'd prefer not to receive it.

Submitting Taxes to a Trustee After Bankruptcy in Florida

When you file for bankruptcy in Florida, you are required to provide the bankruptcy trustee with a copy of your latest income tax return. If you file for Chapter 13 bankruptcy, you are required to provide copies of all income tax returns filed while the case is pending. If you are due a refund, it may or may not be yours to keep.

Trustee Objection to Schedule C Exemptions

When you file for bankruptcy, Schedule C is the part of the paperwork that helps provide you with a fresh start. It lists the exemptions you're claiming. These are dollar values in property you want to keep; by exempting them, you prevent the trustee from selling them to pay off your debts.

Related articles

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

A debtor commits bankruptcy fraud if he intentionally attempts to deceive the bankruptcy court and/or his creditors for ...

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 ...

Can the Bankruptcy Trustee Force the Sale of an Inherited Property?

Like everything else you own when you file for bankruptcy, property you inherited before the bankruptcy becomes ...

What Is the Wild Card Exemption When Filing Chapter 7 Bankruptcy?

The bankruptcy court isn't out to punish you for filing for Chapter 7 protection, and it won't strip you of everything ...

Browse by category
Ready to Begin? GET STARTED