Can the Bankruptcy Trustee Take Your Inheritance?
If you inherit money or property after filing for Chapter 7 or Chapter 13 bankruptcy, the unexpected windfall could affect your case.
The outcome depends upon several factors, including the date you became entitled to receive the inheritance and which type of bankruptcy you filed. As a general rule, however, money and property inherited within 180 days of filing is considered part of your bankruptcy estate. As such, it’s subject to the same rules as other assets.
Does that mean the bankruptcy trustee could take your inheritance? If yours is a Chapter 7 case, the answer is yes. If you filed for Chapter 13, you’ll get to keep what you inherited, but you may have to pay more to your creditors. For a deeper explanation, read on.
The 180-Day Rule on Inheritances after Filing for Bankruptcy
The timing of your inheritance dictates the affect it has on your bankruptcy case. If you inherit any money or property in the 180 days after filing your claim, it will become part of your estate.
What matters here is not the day you actually collect the bequest – which might not be for several months or longer — but the date you become entitled to obtain it. That’s the date that the person who left you the inheritance passed away. And if it happens to fall within 180 days of the date you filed for bankruptcy, the law requires you to inform the court.
What Happens to an Inheritance in Chapter 7 Bankruptcy
In a Chapter 7 case, the bankruptcy trustee takes any assets that cannot be protected with an exemption and uses them to pay creditors. This includes money and property inherited in the 180 days after the petition is filed.
Therefore, if you filed for Chapter 7 and your inheritance fits within one of your available exemptions, you’ll get to keep it. If it isn’t exempt, the bankruptcy trustee can seize it for distribution to your creditors.
How Inheritances Affect Chapter 13 Bankruptcy Cases
In a Chapter 13 case, the trustee doesn’t take any assets – which means there’s no concern about losing an inheritance, regardless of the timing. However, money or property inherited within 180 days of filing can increase the amount of the monthly plan payments.
If you filed for Chapter 13 and your inheritance isn’t exempt, the bankruptcy trustee may ask you to pay the amount into your plan in order to provide your unsecured creditors with a fair share of your estate.
Consult with an Experienced Utah Bankruptcy Attorney
Bankruptcy is a complex area of law, and navigating your way through the process after receiving an inheritance can be a challenge. If you happen to inherit money or property after filing for Chapter 7 or Chapter 13 in Utah, the Law Office of Davis & Jones, P.C., can provide you with the legal assistance you need.
We’ve guided more than 20,000 bankruptcies during our decades in business, and our professional team has extensive experience handling inheritance cases. For a free consultation with one of our highly skilled bankruptcy attorneys, contact our Salt Lake City, Utah, office today.