Rules for chapter 7 bankruptcy & inheritance

Written by bill mann
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Rules for chapter 7 bankruptcy & inheritance
Inheritance and Your Chapter 7 Bankruptcy (woman having financial problems image by forca from

Bankruptcy law is complicated. The rules that govern inheritance before, during and after bankruptcy proceedings give many people particular trouble. How an inheritance is treated in a Chapter 7 bankruptcy case depends on the date of the filing and the date the person you are inheriting from dies. There are even circumstances where an untimely inheritance can lead to discharged debts (debts eliminated as part of the bankruptcy) being reinstated because the inheritance provides money to pay them.

Inheritance Before Discharge

If you become entitled to an inheritance before your bankruptcy case is closed, you must include that inheritance in your bankruptcy estate. This requires filing amended paperwork with the bankruptcy court where you filed the original paperwork. The value of the inheritance goes into the calculations used to determine Chapter 7 eligibility and may be used to pay off creditors.

Inheritance Due But Not Received

Whether you have actually received the inheritance is not relevant to its inclusion in your bankruptcy case. If you are due to receive an inheritance but have not yet received it, you must still include it. If someone has died and left you something in his will or you are otherwise entitled to a portion of his estate, even though you have not received it yet, you are due that inheritance and must include it in your case. If you are listed in someone's will but he is not deceased, you are not due that inheritance and do not need to include that information in your case.

Inheritance After Discharge

An inheritance that you become entitled to within 180 days after the date you file your bankruptcy petition becomes part of your bankruptcy. This is known as the 180-day rule and is a way to prevent people from filing a Chapter 7 bankruptcy as a means to protect an imminent inheritance from creditors.

If you become entitled to or receive an inheritance within 180 days of your bankruptcy filing, you must report it to the bankruptcy court that handled your case. If you do not and the trustee's office learns of it, you may be forced to turn over the inherited assets and your discharge may be revoked. You may wish to contact a bankruptcy attorney if you receive an inheritance within 180 days of your filing to ensure that you handle this correctly.

If you become entitled to or receive an inheritance more than 180 days after you filed your petition, you have no obligation to report this to the trustee or amend your Chapter 7 filing.

Some courts have found that an inheritance in the form of certain kinds of trusts is not subject to the 180-day rule. If you become entitled to an inheritance in the form of a trust, you should consider getting advice from a bankruptcy attorney.

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