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Inheritance Laws and Bankruptcy

If you are considering filing for bankruptcy, or have already filed, and recently received an inheritance, you're probably curious about how inheritance laws interact with the bankruptcy law.

Typically, inheritances, whether they are received as cash or physical assets, are treated as income for bankruptcy purposes.

The key distinction in determining whether an inheritance becomes attached to a bankruptcy estate is the timing of the inheritance. This issue is addressed below.

How Inheritance is Treated by Bankruptcy Laws

If a person receives an inheritance during a bankruptcy filing, that inheritance might become part of the bankruptcy estate. This is determined by the timing of the inheritance, which is divided into two different types.

Inheritance Gained Within 180 Days of Filing

If a filer receives an inheritance within 180 days of the initial bankruptcy filing, they must usually:

  • Disclose the assets to the bankruptcy court and trustee.
  • In a Chapter Seven case, the inheritance will become part of the bankruptcy estate, but it may be subject to an exemption.
  • In a Chapter Thirteen filing, an inheritance may slightly increase the amount a debtor must pay to creditors, although exemptions may also play a role.

Bankruptcy exemptions are often determined by local property laws, so a bankruptcy attorney in your area may help you determine if your inheritance is exempt.

Inheritance Received After 180 Days Have Passed

If filers obtain an inheritance after 180 days have passed since their initial filing, the interplay between inheritance laws and bankruptcy may be very different:

  • In Chapter 7, neither your trustee nor your creditors will probably be able to touch your inheritance.
  • In Chapter 13, circumstances may vary. The bankruptcy judge may allow the inheritance to be exempt from the bankruptcy estate, but this depends on the circumstances of your case.

The seemingly arbitrary 180-day rule was created to prevent people from filing bankruptcy early in order to protect a forthcoming inheritance. In theory, the rule is supposed to stop so-called preemptive filings.

More Information on Inheritance in Bankruptcy

While bankruptcy typically treats inheritances in a uniform fashion, state property laws vary widely. These different laws may have substantial impacts on bankruptcy cases.

For more information about inheritance laws and bankruptcy, many filers contact a a lawyer who practices bankruptcy.

To connect with a bankruptcy lawyer in your area for a free consultation about how bankruptcy laws may work for you, fill out the quick case review form:

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