If you have filed for bankruptcy and then receive money as an inheritance, you need to know what your legal obligations are. This money is probably part of the bankruptcy estate. The questions and answers below will help you from running afoul of the Bankruptcy law.

What to Know About Receiving Money Gifts During Bankruptcy

What happens if I inherit money from a relative after I file bankruptcy?

Section 541 of the U.S. Bankruptcy Code states that if you acquire or become entitled to an inheritance within 180 days of filing for Bankruptcy, the assets you inherit are counted as if they were yours at the time you filed. The date of death triggers the provision, not the date you receive the money. This also includes life insurance. In short, the money is not yours to spend, and you must6 notify your attorney and the Bankruptcy Court before doing anything with the money.

Under Chapter 7, you can claim certain exemptions that might protect same of the money, depending on the amount. Or, if the amount is minimal, the Trustee may choose not to administer it.  Under Chapter 13 the Trustee will probably adjust your repayment plan which will increase your payments.

Does this bankruptcy rule only apply to inheritance through a will?

No. The law covers more than just wills. This 180-day provision includes money from life insurance policies, death benefit plans, pensions, and inheritances from individuals who die without wills.

What should I do with inherited money?

You should not spend the money and report the inheritance to your lawyer. In addition to notifying the Trustee and claiming any possible exemptions, your lawyer can advise you on your specific situation and deal with the Trustee. Failure to notify the Court or Trustee that you have received the money can lead to an Adversary Proceeding to revoke or deny your Discharge on the grounds of fraud. It can also lead to criminal prosecution of Bankruptcy Fraud.   

Based in Rochester, NY, Thomas A. Corletta, Attorney at Law offers nearly 40 years of bankruptcy law practice experience to area residents. A skilled and compassionate lawyer, he is dedicated to helping clients obtain long-term debt relief and the best possible outcomes for their circumstances. If you receive an inheritance while in bankruptcy, report it to your attorney immediately to avoid serious legal consequences, including losing your Bankruptcy Discharge. Visit his website to learn more now and/or call (585) 546-5072 to arrange a confidential consultation.