What happens if I inherit something while I am in bankruptcy?

When you file for bankruptcy you can protect only a certain amount of property from going to the bankruptcy court. This means that in the time before filing, you will work with your lawyer to list everything you own, and make sure that it is protected. Usually this is easy because most people who file for bankruptcy own very little property. But if you get an inheritance, then you will suddenly and unpredictably have much more property. It is likely that some of this property will not be protected in bankruptcy.

For bankruptcy purposes, you receive the inheritance at the moment that the person dies. This is true even if the deceased person has to go through a probate process, and you do not get the property until much later. This uncertainty makes the bankruptcy difficult. If the person dies before you file for bankruptcy, then you should call your attorney immediately and discuss what property you are likely to inherit, and when you are likely to actually get control of the property. A good bankruptcy lawyer will advise you on what to do with the inheritance to keep as much of it as possible in the bankruptcy.

What if the person dies and I become entitled to an inheritance after I have already filed for bankruptcy? If the person dies within 180 days after you file for Chapter 7, then the inherited property can become part of the bankruptcy estate, and you will have to turn over to the trustee any amount that isn't protected in bankruptcy. Again, talk with your lawyer to maximize the property that you can keep.

If you are In a Chapter 13, the type of bankruptcy that goes on for 3-5 years, then the trustee can get any inheritance you receive up to the end of the Chapter 13. Thus, if you have a wealthy family member who is in bad health, you should think twice before filing for Chapter 13.

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