What Happens If I Inherit Property While I Am In Bankruptcy?

There are two dates that must be defined in order to effectively answer this question. First, the date of the bankruptcy filing, as that is the date in the Bankruptcy Code that triggers your obligations. Second, the date that you became entitled to receive the inheritance, which is the date that the person passed away. It does not matter when the decedent’s estate goes through probate or when assets are distributed from the decedent’s estate, it is the date of passing that matters.

In Chapter 7, any property inherited from another while the case is pending becomes property of the bankruptcy estate and is at risk of being liquidated by the bankruptcy trustee. Additionally, there is a “lookback” period in the Bankruptcy Code of 180 days. This means that if you are entitled to receive an inheritance within 180 days from the date of your bankruptcy filing, even if the case is already closed and discharged, it becomes property of the bankruptcy estate. The trustee can reopen the case to liquidate the assets inherited.

In Chapter 13, if you receive an inheritance while the case is active, it becomes property of the bankruptcy estate. Since assets are not liquidated in a Chapter 13, the inheritance is not at immediate risk as it is in Chapter 7. However, you must disclose the inheritance and will likely be required to modify your Chapter 13 repayment plan to account for it (unless you are already paying all of your creditors in full in your plan). This may sound punitive but remember that you will not be required to pay your creditors any more than the value of the assets inherited.

If you are entitled to receive an inheritance due to someone’s passing away, you should notify both your bankruptcy attorney of the inheritance and the person administering the decedent’s estate of the bankruptcy immediately. Some inherited assets can be exempted, but they must be treated properly as they are distributed to you. Failure to disclose an inheritance can be considered bad faith and result in the dismissal of your case without discharge or worse. An experienced bankruptcy attorney can guide you through this process, ensuring that your obligations to the bankruptcy court and process are met while protecting the maximum amount of your inheritance

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