How Long After Bankruptcy Can I Keep My Inheritance?

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When you file bankruptcy, you typically don't have to worry about the property or money you acquire after you file your case. Bankruptcy captures your financial picture at the time you submit your petition, and the court renders a decision of whether or not you should receive a discharge based on this information. However, rules regarding inheritances are different. You may or may not be able to keep an inheritance after filing bankruptcy.

Discharge

The bankruptcy discharge effectively ends your bankruptcy case. When you receive a discharge, you no longer have to deal with the responsibility to pay back your creditors, because the court has ruled that your liability to pay those debts has terminated. Additionally, after your bankruptcy discharge the court can generally no longer liquidate any of your assets to pay back your creditors. Inheritances are an exception, and the court maintains the right to any inheritance you receive within 180 days of filing for bankruptcy. If you receive an inheritance and do not notify the court, you may find your entire bankruptcy discharge invalidated.

Exemptions

Bankruptcy exemptions are one way that you may be able to keep an inheritance after you file. Exemptions are an important part of the bankruptcy process, as they represent property the court allows you to keep if you file Chapter 7 bankruptcy. If the exemptions that your state allows you are large enough to cover the amount of your inheritance, you can keep the value of your inheritance, even if you receive it within 180 days of filing bankruptcy. The reason is that the court does not have access to property such as an inheritance, if it would not have the right to liquidate that property during your bankruptcy case. As you could have protected the amount of your inheritance if you received it during your case, the court has no right to it after your case concludes, either.

Inheritance

In order to lose property you inherit after your bankruptcy case, it must qualify as an inheritance. For example, if your father dies and leaves you money in his will, that qualifies as an inheritance and you may have to surrender it to the court. However, if your father instead passed you money via a transfer-on-death account, you may be able to avoid handing it over to the court. Depending on how your state interprets bankruptcy law, that transfer may be designated a contract, not an inheritance, and be exempt from the 180-day inheritance rule.

Abandonment

If the inheritance you receive is of little value, or if it is an asset that is difficult to liquidate, your bankruptcy trustee may abandon the inheritance rather than pursue it. If the cost to administer your inheritance does not make it worthwhile, the trustee has the right to let you keep your inheritance, even if you should technically turn it over to the bankruptcy court.

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