If you inherit property or money after filing for bankruptcy, it could become part of your bankruptcy estate. Therefore, you would not be allowed to keep it.
The trustee of a Chapter 7 case can take the inheritance unless it’s protected by an exemption. In a Chapter 13 case, receiving an inheritance could increase the amount you have to repay to your creditors.
Whether the property or inherited money becomes part of your bankruptcy estate will depend on the timing of the inheritance. If you receive the inheritance within 180 days after you filed, then it becomes property of the bankruptcy estate. The court and trustee MUST be notified of the additional assets.
It does not matter when you will receive the inheritance…it could be months or years. The important date that matters is the date the decedent passed away because it is on that day that you became entitled to receive the inheritance.
In Chapter 7, an inheritance received within 180 days after you file for bankruptcy becomes part of your bankruptcy estate along with the rest of your property. If it fits within one of the exemptions available to you, you will be able to keep it. If not, the trustee can take it to distribute to your creditors.
For Chapter 13, the consequences of receiving an inheritance also depend on whether the property is exempt. You don’t have to give up your property in Chapter 13 but you will make monthly payments to be divided among your creditors as part of your Chapter 13 repayment plan. If you receive an inheritance that isn’t exempt, you will have to add its value to what you repay to your unsecured creditors, which will increase your plan payments. (If the property is exempt, it has no effect on your repayment plan.)
Bankruptcy laws require that you disclose all new assets to the trustee and the court. This includes receiving an inheritance. To avoid added stress of having your inheritance end up in your bankruptcy estate, you may suggest that you be left the property in a revocable living trust rather than a will.
It would be in your best interest to know the facts and what options you have. Discuss your case with one of our experienced attorneys to determine how your inheritance will be treated during the bankruptcy. The first consultation is always free.