Filing for bankruptcy is a complex process governed by strict rules and regulations. One aspect that can be particularly confusing is determining which assets you’re allowed to keep. While most debtors are concerned with protecting their home, car, and personal property, there are some that must also consider the consequences of claiming an inheritance. Should you receive a windfall in the midst of your bankruptcy proceedings, it’s essential to understand if you’re entitled to the money. Below is an overview of the effect bankruptcy can have on an inheritance.

What Happens When You Inherit Money During Bankruptcy?

The 180-Day Rule & Chapter 7 Bankruptcy

When someone inherits money within 180 days of filing for bankruptcy, they have a duty to report it to the court. It will become part of their bankruptcy estate unless it’s considered exempt.

In a Chapter 7 bankruptcy, any non-exempt assets may be seized by the bankruptcy trustee and liquidated to help pay back the debtor’s creditors. Whether or not this happens with an inheritance will depend on if it falls into one of the state’s exemption categories and how much it is.

On the other hand, if money is inherited after 180 days of filing, the beneficiary is free to keep all the money. It’s important to note that the date of inheritance begins on the day the person leaving it passes away and not the date it’s actually received. 

Chapter 13 Bankruptcy & Inheritances

With a Chapter 13 bankruptcy, debts are reorganized into an affordable repayment plan that lasts three to five years. The monthly payment is calculated based on the debtor’s disposable income and the value of non-exempt assets. Thus, a non-exempt inheritance may be taken into account at any time while the installment plan is still in place, which can cause the payments to increase.

Spousal Inheritance 

In the event your spouse left an inheritance while you’re filing for bankruptcy, it won’t be affected as long as you didn’t submit a joint petition, and your assets remain separate. As such, to keep it out of your bankruptcy estate, the inherited funds can’t be used to pay down marital debt or purchase marital property. 

If you’re considering filing for bankruptcy but have concerns about potentially inheriting money, reach out to Greene Law PC for sound legal advice on how to proceed. They’ll evaluate your financial situation and list of assets to help determine the best course of action. Backed by more than 25 years of experience, they’ve guided numerous residents around Farmington, CT, successfully through the bankruptcy process. Call (860) 676-1336 to schedule a consultation or visit them online for more information on their services.