What if I get an inheritance while I am in a bankruptcy? That’s a question we’re asked a lot. The answer is different depending on which chapter of bankruptcy you have filed. Let’s first look at Chapter 7 bankruptcies.
If an inheritance is received within 180 days after you have filed a Chapter 7 bankruptcy, you are required to notify your attorney, the Bankruptcy Court and the Trustee of the inheritance. The 180-day timeframe is determined by the date you, as the Debtor, become entitled to the inheritance. You become entitled to the inheritance the date the decedent passes away. For example, John Doe files a Chapter 7 bankruptcy on April 1, 2017. On May 15, 2017 John Doe’s father passes away and has left John with a $50,000 inheritance. John is not scheduled to receive this money until November 2017. November 2017 is outside of the 180-day timeframe; however, the decedent (John Doe’s father) died within the 180-day timeframe; therefore, the inheritance is part of the bankruptcy estate.
There may be exemptions available to “protect” your inheritance and allow you to keep whatever amount you can exempt. The exemptions are set out by state and federal law.
It is very important to notify your attorney if you do receive an inheritance within the 180-day timeframe. Your attorney will usually assist in notifying the Bankruptcy Court and the Trustee and will then need to amend your bankruptcy schedules to list the inheritance and exempt some, or all, of it if possible. If you are preparing to file a bankruptcy and you think you may be receiving an inheritance soon, it is extremely important to let your attorney know.