How Is an Inheritance Treated in a Bankruptcy Case?

By Cara O'Neill, Attorney
Find out why you might not want to file bankruptcy if you’re expecting an inheritance.

When you file for bankruptcy, you agree that in exchange for wiping out (discharging) your qualifying debt, your property becomes part of what’s known as the bankruptcy “estate.” In other words, you no longer own the property.

That doesn’t mean that you lose everything, however. You can exempt (keep) a certain amount of property that you need to work and live. The bankruptcy trustee—the court-appointed individual charged with overseeing your case—divides the remaining property among your creditors, including anything that you might have received through an inheritance. So if you don’t want to lose your inheritance, consult with an attorney before filing for bankruptcy.

(You can find out more about the property you can keep by reading How to Find Your State Bankruptcy Exemptions)

Also, if your ailing aunt might pass away and leave you something in her will, it’s probably best to hold off from filing. In a few situations, even property that you acquire after you file for bankruptcy can become part of the bankruptcy estate—and an inheritance falls into that category. It doesn’t matter whether you file for Chapter 7 or Chapter 13 bankruptcy, you must give the trustee anything that you receive due to the death of another person during the 180-day period following your filing date.

Understand, however, that each person’s financial situation is different. A bankruptcy attorney can explain the best options for you, and in many cases, the initial consultation will be free.

Go to the main bankruptcy FAQ page.

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