What Are The Rules Regarding Inheritance And Chapter 7 Bankruptcy?

Inheriting money while in the midst of a Chapter 7 bankruptcy can affect the bankruptcy estate and how your case proceeds. Here’s what typically happens if you inherit money or assets during a Chapter 7 bankruptcy:

Timing Matters

1. 180-Day Rule: If you inherit money or property within 180 days after filing for Chapter 7 bankruptcy, the inheritance is considered part of the bankruptcy estate. This rule applies from the date of filing, not the date of discharge.
2. After 180 Days: If the inheritance occurs more than 180 days after filing for bankruptcy, it typically won’t be included in the bankruptcy estate, and you usually get to keep the inheritance.

Reporting the Inheritance

• Obligation to Inform: You are required to inform your bankruptcy trustee if you become entitled to an inheritance within the 180-day period. Failing to report the inheritance can lead to serious consequences, including the potential dismissal of your bankruptcy case or allegations of bankruptcy fraud.

Impact on the Bankruptcy Estate

• Trustee’s Role: If the inheritance is part of the bankruptcy estate, the bankruptcy trustee can seize the inherited assets or money to pay off your creditors. The specifics depend on the amount inherited and the exemptions you’re entitled to under bankruptcy law.
• Exemptions: Depending on the laws in your state and the nature of the inherited assets, you might be able to exempt some or all of the inheritance from being taken by the trustee. Exemptions vary widely by state, so it’s crucial to understand the rules that apply to your case.

Legal and Financial Advice

• Consult an Attorney: Given the complexities involved, it’s wise to consult with a bankruptcy attorney if you’re expecting an inheritance or receive one during your bankruptcy. An attorney can help you navigate the legal requirements and work to protect as much of the inheritance as possible.
• Estate Planning Considerations: If a family member plans to leave you an inheritance and you’re considering bankruptcy, discussing estate planning strategies with them and a legal professional might be beneficial. There are ways to structure an inheritance, such as through a trust, that could protect the assets from being included in the bankruptcy estate.

Inheriting money or assets during a Chapter 7 bankruptcy can complicate your case, but the key factors are the timing of the inheritance and the applicable exemptions. Always report any inheritance to your bankruptcy trustee and seek legal advice to understand how it might affect your bankruptcy case and what steps you can take to protect your interests.

Inheritance And Chapter 7 Bankruptcy