Bankruptcy And Inheritance

Section 541(a)(5) of the Bankruptcy Code provides that property of the bankruptcy estate includes:

“Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date –

(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan.”

What does this mean to the average filer?

Basically, if someone dies in the 6 months after you file bankruptcy and you inherit anything or receive life insurance proceeds, the inheritance or life insurance proceeds are part of your bankruptcy estate and could be used to pay the claims of your creditors. (§541(a)(5) also deals with property settlements in a divorce. This blog post focuses only on the inheritance issue.)

If you don’t want your inheritance to go to your creditors, you need to talk to the people you believe might leave you anything. Grandpa can change his will or life insurance beneficiaries any time until the day he dies. He can leave “your share” to your kids or other family members, remove you as a beneficiary, or include a valid spendthrift clause in his will. You could also disclaim any possible inheritance before he dies. Once he dies, you can’t retroactively change the will or disclaim the inheritance. If he decides to make any changes, he should speak with an estate planning or probate attorney.

You may feel the risk of someone dying and leaving money to you in those six months is slim. While you’re probably correct, remember that anyone can get hit by a bus tomorrow. And don’t forget about that great-aunt living in Las Vegas who is planning to leave you her $500,000 in gambling winnings. You might want to talk to her.

If you are considering filing bankruptcy, you need to carefully consider whether you want to (1) ignore this issue and hope no one leaves you money in the next six months, or (2) talk to your relatives about protecting any possible inheritances.

Image credit: Ken_Mayer/Flickr

Be Sociable, Share!

98 Comments

  1. I’m baffled as to why you say someone can’t disclaim an inheritance after the person has died. Of course they can. You make the qualified disclaimer in writing within 9 months after the person has died, and before the asset is distributed.

    • Thanks for reading.

      Outside of bankruptcy, you’re correct. Anyone can disclaim an inheritance. But once the hypothetical beneficiary has filed bankruptcy, the right to disclaim belongs to the bankruptcy trustee, not the debtor. Therefore, the bankruptcy debtor cannot disclaim within 180 days after the petition has been filed, because the inheritance (or right to disclaim) is property of the bankruptcy estate.

      The post is exclusively meant for bankruptcy debtors. Sorry for any confusion.

  2. Example question: If i file for chpater 7 Bankruptcy on January 1 and i have a potential inheritance already forthcoming but is EXEMPT because of a spendthrift clause, can I receive the inheritance after the bankruptcy discharge but before July 1? IN OTHER WORDS, is the exempt inheritance still exempt AFTER THE CHAPTER 7 discharge but BEFORE THE 180 DAYS FROM INTITIAL FILING?

    • Excellent question. Thanks for joining the conversation!

      The right to receive any potential money would likely not be property of the bankruptcy estate (11 U.S.C. §541(c)(2)). The main reason spendthrift trusts are not property of the bankruptcy estate is that the trustee is not obligated to make distributions to the debtor. If the trust has a valid spendthrift clause under state law, the debtor cannot compel the trustee to distribute anything. In the debtor’s bankruptcy case, the bankruptcy trustee (it can get confusing with all these “trustees” running around) essentially steps into the shoes of the debtor. If the debtor can’t force a distribution, the bankruptcy trustee can’t force a distribution, and the trust remains safe.

      HOWEVER, once the trustee decides to make a distribution, all bets are off. Once the funds are in the hands of the debtor, state law may allow creditors (including a bankruptcy trustee) to pursue those funds. Wisconsin Statutes §701.06(2): “…but a judgment creditor, after any payments of principal have become due or payable to the beneficiary pursuant to the terms of the trust, may apply to the court for an order directing the trustee to satisfy the judgment out of any such payments and the court in its discretion may issue an order for payment of part or all of the judgment.” (emphasis added)

      With a spendthrift trust, payments don’t become due or payable to the beneficiary until the trustee decides to make a distribution. Once the trustee makes a distribution, the funds have become “payable” and judgment creditors (including the bankruptcy trustee) may seek to get paid from those funds.

      Sorry for the excessively long answer, but it can get complicated. In your fact pattern, the right to receive payments from the trust would not be property of the bankruptcy estate. But if the trustee made a distribution to the debtor within 180 days of filing, those funds MAY be property of the estate and subject to a turnover demand from the bankruptcy trustee. The safer strategy is for the trustee to withhold all distributions to the debtor until the bankruptcy case has been closed and 200 days have passed since the bankruptcy filing.

      • I am caught in a discharged bankruptcy nightmare. I had no idea that there was a clause such as this when filing bankruptcy. Additionally, my mom passed away a month after I filed. The trustee got my portion of her estate dec29 when he filed notice for detbtors to make claims regarding inheritance. The deadline was March 11, 2016. Then an extension was filed for claimants to have until April 15,2016. Which forced me to file a tax extension for 2015. I’m starting to become nervous that I will NEVER see any of this money. I’m an educator and want to send my daughter to college. Is there a limit he can keep my money since it is more than I owed my debtors. Or is there any legal action that I have to regain the portion that is mine?

        • All of your creditors must not have filed claims by the deadline. The trustee only receives a commission on the money he pays out to creditors, not money he gives back to the debtor. So the trustee is trying to make sure as many claims get filed as possible. Once the trustee pays out all of the claims, he’ll return the balance to you.

          You could ask your attorney to contact the trustee and get an estimate on when claims will be paid out. Your attorney could also propose that the trustee keep a little more than the total of all of the unsecured claims, and return some of the excess funds to you now.

          I’m sorry you weren’t aware of this provision. Pre-bankruptcy planning could have avoided the entire mess.

  3. what happens in a 50% chapter 13 for 5 years, and a parent dies 20 months before the 13 is totally finished. Does the court take money from the inheritance to fully pay all creditors, in essence to repay at 100%, or can the remaining months be paid in full, at the time inheritance is received, and the whole thing be closed (discharged)

    • The inheritance may not be property of the bankruptcy estate, depending on your jurisdiction. Different courts apply §1306, §541, and §1329 of the Bankruptcy Code differently, some saying that an inheritance received more than 180 days post-filing is property of the bankruptcy estate, others saying it is not, and others saying that receipt of such a windfall requires a plan modification.

      You should speak to your attorney to find out how your court handles such things. In any case, the inheritance should be disclosed to the Court and the trustee. Failing to do so may result in accusations of concealing assets.

      • Yes the trustee has hAd possession since the date of distribution on Dec 29, 2015. The creditors had a 90 daytime to file plus an extensions of 30 additional days and there is no action even though several claims have been filed to the trustee.

  4. I am confused; we originally went to b.k. paralegal dec. 24 th 2012 after months of getting b.s. answers and no action we found out her bar or st. lic. was suspended AFTER we paid her $200.00 we found another paralegal in april filed, in may dad died before we went to court. I was 1 of 3 in a “living trust” no funds so to speak but a home that was paid for sold for $205,000 escrow closes in a week and the funds go to “family trust acct.” in which my older brother and sister are named executors. to distribute at there discretion. I have filed 2 b.k. prior to this one was divorce from first wife second was got out of prison this time const. ate s^%t I dont mean to sound bad but this is my only chance to buy a house and pay cash (well a mobile home anyway) my intentions on letting trustee getting this money (about $65,000.00) is I would take death first WHAT DO I DO?? THANK YOU IN ADVANCE.

    • I can’t give you advice on this blog, but I can give some general information.

      1 – A paralegal can help you prepare the papers, but can’t give you legal advice. It sounds like you actually filed pro se. If I’m wrong about this, you need to contact your attorney immediately and let him/her know about this inheritance.

      2 – Whether or not you have an attorney, you have a duty to let the trustee, USTO, and court know about this asset. Disclosure is not optional. Without knowing the specifics of the will/trust/inheritance, I can’t say if it’s property of the bankruptcy estate or not. If you don’t already have an attorney, I recommend you contact a local attorney right away. He or she will be able to tell you if the inheritance is property of the bankruptcy estate, whether you have any available exemptions to protect it, and how much (if any) of it you’ll be able to keep. Your attorney will also be able to help you amend your Schedules B and C to disclose the asset and exempt it.

      3 – Simply ignoring this issue and hoping the trustee doesn’t find out is a very bad idea. Doing so would violate the Bankruptcy Code and Rules, would risk having your bankruptcy discharge denied, and would risk the consequences of bankruptcy fraud.

  5. My husband’s father died approximately 25 years ago. He died with out a will and we were told that my husband inheritance is split with his mother. He is an only child. We just found out that my mother-in-law wants to file for bankruptcy. We were wondering what would happen to my husbands inheritance?

    • That’s a question for your mother-in-law’s attorney. Depending on where you live, any inheritance due your husband should have already been received, given that the death occurred 25 years ago. If your MIL has been holding those funds for 25 years, they may be exempt. But in most cases, a third party’s bankruptcy will not affect someone else’s inheritance. This post refers to the situation where the bankruptcy filer inherits something within 180 days. If your husband isn’t filing bankruptcy, his inheritance shouldn’t be affected.

  6. Me and my siblings are equal heirs of my dads estate, however my brothers portion is to be paid to him at the rate of $200 per week, and if he dies prior to receiving it all, the remaking portion would go to my granddaughter. I’ve learned that my brother is filing bankruptcy. Can the court take his inheritance considering my granddaughter is named as well, to his portion?

    • If he files bankruptcy, his interest in your dad’s estate will belong to your brother’s bankruptcy estate, subject to exemptions. He should make sure to disclose his interest to his attorney, so his attorney can do some exemption-planning before filing.

  7. My husband filed a chapter 13 bankruptcy. I did not. His uncle died and left him money which his aunt sent him a check. He is being told it will be part of the bankruptcy estate BUT he is also being told his aunt also cannot turn around & write the check out to me if she feels like it because it would be part of bankruptcy anyway even though I never filed bankruptcy. I don’t understand this, I never filed bankruptcy if his aunt wants to leave me the money can’t she leave it to whoever she wants to? And why would any money left to me be part of my husband’s bankruptcy even though I never filed? Does this also mean if one of my family members died & leaves me money I won’t see a cent even though I personally never filed bankruptcy but my spouse did??

    • You need to speak with your husband’s bankruptcy attorney.

      If the uncle left the money to his wife, she would be able to do anything she liked with it. But if the will left the money to your husband, once the uncle died, your husband had the right to the money. And since he’s in bankruptcy, that right went to the trustee. His aunt doesn’t have the right (again, depending on what the will said) to withhold payment or pay to a different person. She has to follow the directions in the will. His aunt can give you anything she wants from her own funds. But your husband’s inheritance does not belong to her and she can’t use it however she sees fit.

      If you inherited something, it probably would not be property of your husband’s bankruptcy estate.

  8. My sister is filing for bankruptcy, Chapter 7. She is the beneficiary on a bank account but wants to wait to collect the money until after her bankruptcy, 180 days later to claim it. What happens here? Will they find out?

    • Your sister must disclose this account to her bankruptcy attorney. If she has already filed and didn’t disclose the asset, she must amend her schedules to disclose and (hopefully) exempt.

      In most cases, the date of the death is the triggering event, not the date the money is claimed. Anyone who would try to conceal this asset from the trustee and court would be guilty of bankruptcy fraud. Again, your sister needs to speak with her attorney before doing something foolish.

      In answer to your last question, see this blog post.

  9. my father was quit claimed 1/3 of a house and property from his uncle. a little over a year later my father died. 8 months later my/his uncle that deeded the property to him died. does my fathers 1/3 go to the other two nephews or does it go to my mother. my father had a will that stated all property went to my mother. my fathers will did not have to be probated because everything went to my mother.

    • Did any of these people file bankruptcy? If not, the answer will depend on your state’s probate laws. I’m not an expert in probate, but in my opinion, your father owned the 1/3 interest when he died, and that 1/3 interest passed to your mother. Once he quit claimed the property, your uncle had no interest in the property. Therefore, when (or even if) he died makes no difference regarding the title to the property.

      Of course, you shouldn’t rely on a blog posting for legal advice. I’m only licensed in Wisconsin and I don’t practice in probate law. If you want legal advice, speak to a local probate attorney. Good luck!

  10. I am currently in a chapter 13 bankruptcy that I started before I married my husband he was recently in a accident in his truck he purchased before we were married and received a settlement can my trustee take his settlement?

    • Probably not, but you should check with your attorney. Chapter 13 bankruptcy practice is very localized, so your attorney can tell you if the settlement is exposed, or if you even have to disclose it to the trustee and court.

      Since I don’t know the specifics of your case and don’t give legal advice on this site, the bankruptcy attorney who filed your case is the best source of information. Good luck!

  11. Hello. I’m in a chapter 13 four years down, with only six months left. Yay ! My Grandmother dies in March and has left me 25% of her very large estate. I do not know the exact amount, nor do I know exactly when I will receive it. If I get it before the bankruptcy is over (6 months) do I have to give it to them and my unsecured creditors? Can I just pay the remaining $10,000. and be done? I’m in Maine. Thank you

    • You need to talk to your bankruptcy attorney immediately. Different courts apply §1306, §541, and §1329 of the Bankruptcy Code differently, some saying that an inheritance received more than 180 days post-filing is property of the Chapter 13 bankruptcy estate, others saying it is not, and others saying that receipt of such a windfall requires a plan modification.

      In most cases, the triggering event is the death, not the date you receive the money. Your attorney can tell you how your court handles such things. Keep in mind that failing to disclose may result in accusations of concealing assets and put your Chapter 13 discharge at risk.

  12. Hello,
    I am in the process of considering bankruptcy. However, my father died some 7 years ago leaving his estate to be evenly split between myself and my sister. Due to family squabbles the estate probate remains open and the estate assets have not been dispersed. Would my inheritance still be part of the “bankruptcy estate” even though my father passed away well before the 180-days-prior-to-filing and 180-days-after-filing” window. My bankruptcy attorney says “yes” but everything I’m reading seems to imply otherwise. I live in Arizona. I really need to know which is correct.

    • Your attorney is correct. Section 541(a)(5) of the Bankruptcy Code says that inheritances within 180 days after filing are property of the estate. So the “180-day” rule is inapplicable to your situation.

      But you do have a right to payment from your father’s estate, and that right is an asset to be either surrendered or exempted. Whether you’ve received it or not is immaterial; you have rights in the probate estate today. Think of it this way: the asset you have right now is the right to be paid from the estate, sort of an account receivable. I don’t know if your attorney has any exemptions available to protect that right from the bankruptcy trustee, but that right will definitely be part of your bankruptcy estate.

      Since your father died seven years ago, I assume it’s too late to disclaim your interest, but you should ask your attorney if that’s an option. Alternatively, you could wait until the probate estate is settled, and follow your attorney’s advice as to how to invest the proceeds to protect as much as possible. Since it’s been pending seven years, it’s likely that legal fees have eaten up a good share of the estate anyway.

  13. My mother recently filed for bankruptcy. In the time just prior her father passed away and she was the sole beneficiary on his life insurance, with the expectation from her father that she would split the money evenly between her and her brothers (I believe it is stated in the will, but am unsure.) She checked with her bankruptcy lawyer prior to splitting said money and was told it would be fine. They went to bankruptcy court last month and this past week all of her brother’s received letters stating that she didn’t have the right to give the money and they need to pay it back. Her brother’s are all getting their own lawyers, but could you explain how, when she was told by her bankruptcy lawyer it was fine, the court is now requesting that money back?

    • There are a lot of possibilities:

      – The lawyer was wrong.

      – The letters were sent by a trustee who is hoping the brothers will just cave and send him money.

      – The letters were sent by a trustee who has already got a court order saying that your mother did not have the right to distribute the money.

      I doubt that the letters came from the court. They probably came from the trustee who is seeking to bring those funds into the bankruptcy estate. If the brothers hire lawyers, it will either be settled or tried in front of a bankruptcy judge, who will make the final decision.

  14. Hi my father died seven years ago. My father co-owned a piece of land in the Philippines with his two other siblings. Recently, the co-owners have decided to sell the property. Last I heard they are in the process of closing the sale. I filed for bk 7 March of this year. My father’s share/interest would have automatically gone to my mother however she just recently decided to waive off her interest and so now it’s being passed on me and my other three siblings. I was not aware of this not till after I filed my bk7 that’s why I didn’t even include this property to my list of assets in the first place. Having said that could you explain to me how the 180 days applies to me and the fact that my mom just recently passed on her interest to us children how does this affect my situation as well as my bk. By the way I have learned recently that my bk has just been recently discharged and closed. Also I want to know when is an inheritance considered received, is it upon death of your father or upon settlement of the estate by an extrajudicial agreement? (although again my mother was suppose to be the successor of my father’s interest if he were to die) Is the waive effective to exclude what I would receive from creditors? Kindly explain and break it down. Your response will be greatly appreciated. Thank you!

    • Your first step is to contact your bankruptcy attorney and tell him/her the whole story.

      In general, the right to receive an inheritance occurs at the death of the testator. But as I understand it, you had an interest in the property when you filed your bankruptcy, even if you didn’t know it. Section 541(a)(5) doesn’t apply in this situation (because you owned the right before you filed, not within 180 days after filing). Since the property right wasn’t disclosed, it was never abandoned from the bankruptcy estate.

      Your attorney can reopen the bankruptcy case, disclose the asset, and exempt whatever is possible. Depending on how much is at stake, the trustee will either abandon the interest or administer it for the benefit of your creditors.

      But the most important thing is to tell your attorney as soon as possible. It’s easier (and usually less expensive) to deal with these things sooner rather than later. If the court or trustee suspects you were trying to conceal an asset, you may have a bigger problem.

  15. Hello I am claiming bankruptcy as soon as I have the money. I am filing for medical bills and some credit card debt. But the big thing is my student loans. My son is very sick and I cannot work. Now my mom is on her death bed and I am about to inherit money. The thing is my husband is the only one working by my son is so sick. So we would like to get a reliable car and my husband is going to build us a house with the left over money. I haven’t claimed bankruptcy yet, my lawyer said I needed to put the money into a trust and I cannot receive the money until I am 31, I am 29. My mom put that in her will, but she just changed it because she wants us to have two cars and have a reliable car for me. So what I’m wondering do I wait to file for bankruptcy before I get the money?

    • I don’t give legal advice on this site, only general information. Your attorney is the best source for information specific to your case.

      Depending on where you live, what exemptions are available, and how much Mom has, maybe she could buy the cars for you now. Or give a gift of the cars after you file. There are a lot of options, but your attorney is the only one you should trust to give you legal advice specific to your situation. Good luck.

  16. My last surviving parent recently passed away and left some money behind. One of my siblings was the sole beneficiary on the account that has the money. If the sibling gives me $ from that account, must I still report it to the Trustee? What if I receive material goods (i.e., furniture) or payment of services (i.e, car repair) as gifts in lieu of cash from the sibling paid from funds in the account, must I report receipt of those gifts to the Trustee?

    • Your first step is to contact your attorney. He/she will be able to give you advice specific to your situation. Even if it’s not property of the bankruptcy estate, disclosure is never a bad idea.

      In general, if a debtor in bankruptcy receives anything “by bequest, devise, or inheritance” within the 180 days after filing bankruptcy, it belongs to the bankruptcy estate. Your attorney may make the argument that it wasn’t by bequest, devise, or inheritance (and I think it’s a pretty good argument), but that would be a question of law for the judge to decide. Once anything goes to a judge, there are no guarantees. Assuming you weren’t entitled to receive anything from the estate, it may be safer to wait until after 180 days from filing to accept any gifts from your sibling. But again, your attorney is the best source of information for your particular situation. Good luck, and thanks for reading.

  17. If a parent dies after a chapter 7 is filed, within the 180 day period, is there any exemption under Wisconsin or Federal law for life insurance proceeds owed to the Debtor due to the parent’s death?

    • Thanks for reading.

      It depends on how much the proceeds are. If the debtor was a dependent of the parent, §522(d)(11)(C) should work to protect the amount reasonably necessary for support. There is also a wildcard exemption available up to $12,725 (522(d)(5)); if the debtor did not use all of the wildcard to exempt other assets, he/she could amend the schedules to exempt as much of the life insurance proceeds as possible.

      Under the Wisconsin exemptions, there is no wildcard. However, 815.18(3)(i) Stats. has the same provision as the federal exemptions if the debtor was a dependent of the parent.

      But a debtor should contact his/her attorney immediately for advice specific to the debtor’s situation.

      • Wow, great information, thanks!

  18. Converted a Chapt 13 to a 7 after spouse was laid off from company. Then father dies within 180-period. I am executor of parents’ estate and also named single beneficiary of a leftover annuity. However, the annuity is to be included (though not listed in will specifically) as portion of 50/50 split with sister and distributed In parent’s succession. Can I make agreement/amendment with sister to give her an increased portion of parent’s succession equal to her half of annuity dollar without being considered fraudulent? I would cash annuity and make appropriate BR schedule amendment, but don’t want to appear as avoidance of taking my full 50% of parents inheritance. (La. Estate Succession/Federal BR filing)

    • You need to speak with your attorney ASAP. Bankruptcy law is very court-specific. *IF* the inheritance is property of the bankruptcy estate (death occurred within 180 days of the original filing), you shouldn’t do anything until you speak with your attorney. He/she will be able to tell you how to proceed. If you dispose of funds before the trustee learns about them, you may risk your discharge and criminal charges.

  19. My Mother and father had a trust – My father passed away in April 2015 – My mother is now rolling over part of that trust into a new trust (and leaving the original).

    I declared bankruptcy in August 2014 and was discharged in January 2015.

    The attorney for the trust asked for our social security numbers and addresses.

    I have two problems – questions.

    I don’t want my family to know about my bankruptcy
    Also, since my mother is not deceased and it’s been over 6 months, can my discharged creditors come back for my share?

    • Your bankruptcy attorney can give you information regarding your specific case. As a general matter, if you didn’t receive a right to any property within 6 months of the bankruptcy being filed, your discharged creditors would not have any rights to any funds you may someday inherit.

  20. I filed my bk 7 in March 2015. It was closed in June 2015. I recently found out that a property offshore that belongs to my grandmother is for sale. The property in question is in my grandmother’s name and has been since 1949. She passed away over 40 years without a Will. At the present time the property is in the process of being transferred over to her heirs (my father, and his three other siblings) and is scheduled to be put on sale. However, my father passed away in 2009 and left no Will. The property will be in probate. I will be entitled to receive an inheritance through extrajudicial settlement. Can I receive this inheritance without affecting my already closed BK 7? By the way, my grandfather passed away before my grandmother.

    • You need to speak with your bankruptcy attorney. If you had any interest in the inheritance when you filed your bankruptcy, even if you didn’t know about it, the bankruptcy estate still owns it, since undisclosed assets are not abandoned at case closing. If you filed pro se, you should contact a local bankruptcy attorney. See NACBA.org for a listing of bankruptcy attorneys close to you. Good luck!

      • Thank you for your reply. Just a follow-up question (sorry if I’m still a bit confused). But isn’t it that my right/interest to the estate only exist once my grandmother’s estate gets transferred over to her heirs? Until now (post my bk) the estate is under her name and like I mentioned above didn’t leave any Will. Kindly clarify. Thank you!

        • It’s a question of state law (which is why you should talk to your bankruptcy lawyer.) In Wisconsin, the right to inherit usually happens at the moment of death. When Grandma died, her heirs had an interest in her estate, whether or not they acted on it or received anything at that time. When your dad died, his interest passed to you. Therefore, you had an interest in the estate (even if you didn’t know about it) at the time you filed.

          Again, you really should talk to your bankruptcy attorney to get advice on how to proceed. If this right to inherit is property of your bankruptcy estate that was not disclosed, your attorney should be able to minimize any damage or losses.

  21. My brother was in a legal case for partition of our deceased parents property in India against their registered will in favor of our sister,since 2012 He filed for CH. 7 in July 2015 and his case was closed as no asset case. When we raised this issue with Indian court for dismissal on this groun, his lawyer moved motion of reopening of CH. 7 case on 11 USC 541 (e) that he has got eligible for inheritance but did not disclosed the legal case since 2015.
    1)Can I contest the reopening of his CH. 7 case there in USA and what would be consequences for my brother in USA?.
    2) can I settle matter directly with Trustee of the case as settlement?

    • Good questions, but this matter is complicated, so you should not try resolving this by yourself.

      In some jurisdictions, judicial estoppel would prevent the debtor in bankruptcy from exempting any undisclosed asset. But the trustee may reopen and try to administer the asset, so you (or your lawyer) *might* be able to negotiate with the trustee. The short version: if the debtor in bankruptcy said he did not have a right to any real or personal property in India when he filed bankruptcy, the court in India might hold him to that statement. If the debtor reopens the bankruptcy case to disclose the asset, the bankruptcy trustee might object to the exemption, alleging that the debtor attempted to conceal the asset. But it’s all very fact-specific, so you (or your attorney in India) should contact an attorney in the jurisdiction where your brother filed his bankruptcy.

      • Thank you very much sir, for educative reply.
        Just one imp. point I want to draw you attn. to for your advice i.e., the motion moved by my brother for reopening CH. 7 case is :
        1) not to amend schedule for asset forgotten/ omitted in original filing i.e. ongoing legal case since 2012 in India but he has moved motion that..

        “It seems he has got eligible for his share in inheritance either on the day of filing or within 180 days…”

        What I understand “he has even now not disclosed pending litigation in India” and again has done purjary as the case for BK was filed in July 2015 and motion has been moved in mid April I.e. 9 months after filing for his BK.

        Request you to educate me if I am correct on my above conclusion so that I can prepare myself accordingly.

        • I don’t give advice for specific situations on this blog, only general information.

          If the case is reopened, you (or your attorney) can file an objection to any exemptions. In general, anything that the debtor owned, including the right to sue anyone, as of the date of filing was part of his bankruptcy estate. If he didn’t disclose it in the original filing, it was never abandoned by the bankruptcy trustee, and the trustee can now administer it. If the debtor inherited something within 180 days after filing, that was also part of his bankruptcy estate.

  22. I have a dispited inheritance property share of around $ 188000. And planning to file for chapter 7 in Arkansas.
    I don’t know if I will get any share in disputed inheritance, hence want to avil what I am having in my possession such as my house in AR etc.
    Can I somehow bring this disputed inheritance share under exemption somehow so to retain it if I get any share
    OR such a big amount will not be spared by Trustee.

    • You need to disclose the inheritance to your bankruptcy attorney before you file. He/she will be able to tell you what exemptions are available in Arkansas. If there aren’t any available exemptions, your attorney will help you with permissible exemption planning. If you haven’t hired an attorney yet, go to NACBA.org and find someone close to your location. Good luck!

  23. I am about to file BK CH 7 and
    I am in a litigation for alleged share in an inheritance property of my late parents for last 4 years.
    Where in my schedules I must mention this asset?
    1) Property I own (alleged share in inheritance).
    OR
    2) legal right to sue weather sued or not?
    OR future claims?

    • That’s a question for your attorney. He/she can tell you whether it belongs on line 30, 32, 33, 34, or somewhere else. Your attorney can also tell you if you any exemption available to protect the expected recovery.

      It might make sense to wait until the litigation is completed before filing the bankruptcy. Otherwise, the trustee may take over and settle for less than your current attorney and use the proceeds to pay your creditors. This is a dangerous area, and your bankruptcy attorney needs to have all of the facts before filing.

  24. How does bankruptcy effects the Power of Attorney already given to someone to present principal in court of law in a property case.
    1) does powerof attorney become void on filing bankruptcy?
    2) can a new power of attorney be executed after discharge in BK for any legal case pre existed (before BK) legal case?

    • In general, a Power of Attorney is unaffected in a bankruptcy, because it’s not an asset with any value to the bankruptcy estate. But if someone filing bankruptcy has power of attorney for someone else, it should be disclosed to the bankruptcy attorney to make sure there are no exceptions.

  25. My spouse and I are almost 2 years into our chapter 13 bankruptcy. He is now terminally ill. I have a spousal life insurance policy on him through my place of employment. In the event of his death, will the proceeds from this policy go into my bankruptcy or will i be able to use it to pay for his final arrangements and to substain our family in his absence?

    • You need to speak with your bankruptcy attorney soon. In most cases, you’d be able to keep the insurance proceeds. But your attorney can tell you if it makes more sense to continue the case, apply for a hardship discharge, convert to Chapter 7, or something else. There are a lot of options, and your attorney is the best source of information.

  26. Can a Power of Attorney executed after discharge & closure of BK Chapter 7 for an asset NOT disclosed in Schedules and surrendered to the Estate.
    The right in concealed asset is still legally contested in court of law by the debtor during and after closure of Chapter 7.
    If not, then what could be its repercussions for the debtor?

    • Those are all questions for the debtor’s bankruptcy attorney.

      As a hypothetical, the answer will likely depend on state law. If the asset was never disclosed in the bankruptcy, it was never abandoned by the trustee. Therefore, it may still remain property of the estate. Repercussions for not disclosing an asset could range from legal fees to reopen and disclose, all the way to criminal prosecution for fraud and revocation of discharge. But it’s very fact-dependent, so the attorney should be informed of this immediately.

  27. Evil sister is selling inheritance home. I own 1/3 can I purchase the home through bankruptcy?

    • I don’t know. It depends on whether the house is property of the bankruptcy estate. If it is, and the trustee sells it, anyone can make an offer. I don’t see how Evil Sister’s sale can close if all of the owners don’t sign off.

  28. Hi, My husband and I filed for bankruptcy chapter 7 in Sept we had our meeting of creditors on Oct 21 and we are just waiting for the discharge now. My husbands father just past away two weeks ago and his brother told him he may be getting some of a small life ins policy probably about 9k. Will the bankruptcy trustee take this from us or are there exemptions for this? We are in Maine.

    • I don’t know if there are exemptions available to you, as I don’t practice in Maine. The $9,000 definitely has to be disclosed to the trustee, the USTO, and the court. Simply keeping quiet is not an option. Your attorney can give you more advice on how to supplement your schedules and file them. With any luck, you’ll have exemptions available to protect at least some of the insurance proceeds.

      • Thank you, I figured we would have to disclose the money. We had not expected this to happen nor did we know about the policy but the his brother mentioned it this past weekend it got me thinking they will just take that from us.

        • Maybe. But if your attorney is good, he/she may find something that will let you keep some of it.

  29. If a discharged Debtor reopens his closed bankruptcy by motion that he MAY have become eligible for some inheritance within 180 days of filing but does not file any amended schedules or give details to the Court fior a long time. What are the powers and process of trustees to proceed?

    • If this is an actual situation, speak to your attorney.

      As a hypothetical, anyone *may* become eligible, but only those that *do* are required to inform the court. If the trustee believes there may be nonexempt assets to administer, he/she will likely move to reopen the case. The debtor would then have to cooperate with the trustee. Any assets of the estate (including inheritances) that are not disclosed on the schedules are never abandoned to the debtor, and the asset will remain property of the bankruptcy estate until this is remedied.

  30. Me and my ex husband were in Chapter 13 together and he passed away last September. I received some Life insurance proceeds that I turned over to my bk attorney. The estate is trying to get it because in our divorce decree I gave up any inheritance, We have a hearing next week with the BK Court to give instructions on the Life Insurance. What could happen here? Keep in mind we had a minor child together who lives with me>

    • Your bankruptcy attorney is working for you, so you should ask him/her.

      Whether the proceeds come into the bankruptcy estate depends on local custom. Some courts hold that inheritances/life insurance outside of 180 days from filing are subject to liquidation, or grounds for a plan modification. Others hold that the funds are property of the estate (so they are protected by the automatic stay), but are not considered for purposes of the Chapter 13 liquidation test.

      It’s a complicated matter, so you should ask your attorney to explain the possible outcomes.

  31. Does Trustees of BK CH-7 have right on undisclosed assets for 7 YEARS Only from date of filing of BK Case? OR there is no time bar for trustee to chase assets of BK Estate even if they have not been disclosed in Schedules or Concealed for the Trustee? Pl. Guide.

    • If assets are not disclosed on the bankruptcy schedules, they are never abandoned and remain part of the bankruptcy estate forever. In the case of inheritances, only rights that arise within 180 days of filing become part of the bankruptcy estate. If a debtor becomes entitled to receive an inheritance 190 days after filing, the bankruptcy estate (and trustee) have no interest in it.

  32. If trustee files his wrong report of NO ASSET but there is evidence of existence of Estate Asset (pre petition pending probate litigation) then:
    1) where it can be reported?
    2) Will court take cognizance of this fact & refuse to close the case?
    3) Can trustee revise his report on pointing out his fault?
    4) How a party who wants to buy this litigation rights should proceed to pursue this matter & don’t let the case closed without trustee replacing plaintiff of liquidation of litigation rights?

    • 1 – If this is a pre-petition claim that wasn’t listed on the schedules, the debtor is required to amend the schedules to disclose it. If the debtor refuses, anyone could contact the trustee and rat the debtor out.
      2 – The case would close as usual, unless the trustee withdraws the no-asset report.
      3 – The trustee can withdraw the report if undisclosed assets are discovered.
      4 – If the trustee has an asset to administer, anyone can contact him/her to make an offer to purchase the asset.

  33. I have a 1/4 inheritance of my parent’s home through succession from when my father passed 8 years ago, since he had no will. I never wanted any of the home ownership since it was my mother’s and father’s home. I had planned to sign over my portion to my mom, but never did. Now I am looking at filing chapter 7 in GA, but lived in TX last year, which means I would be able to claim TX exemptions. Should I disclose this inheritance, and if so, can I claim this under my TX exemptions, if needed? I have no other real estate ownership. Parent’s home is in LA.

    • You have to disclose all of your assets, regardless of where they are. Your attorney can help you with the exemption planning. He/she will have to become familiar with the exemptions Texas allows.

      Be completely open and honest with your attorney. This is a dangerous situation, where you could lose your interest in the house if you’re not careful.

      • Do you think that signing a Disclaimer from inheritance would help at this point?

        • I’m not going to give a legal opinion on the effect of disclaimers in Georgia. But your attorney should have that info. Again, you have to disclose all of this to your attorney. He/she can’t give competent legal advice without all of the facts. And once you file a Chapter 7, it’s too late to do any exemption planning.

  34. On a similar note, if you own an insurance policy on someone who is not a dependent or a spouse, are you able to change the beneficiary while you are in a Chapter 13?

    • If a debtor owns the policy and is the beneficiary of the policy at the time of filing, the bankruptcy trustee will likely argue that the policy is property of the estate, and only the trustee can change the beneficiary. This may depend on local practice; I haven’t had it come up. Your attorney would be the best source of information.

  35. My dad sister and I never opened a succession on my mother when she passed away 7 yrs ago. We are considering filing chapter 7 but they would take part of my dads house which I feel he worked for that I didn’t! I owe him money and I been wanting to turn my share over to him! If I do an act of donation in Louisiana could the courts come back on me?

    • That’s a question for your attorney. Don’t dispose of ANYTHING until you talk with him or her. Giving something away (or paying back money you owe) before filing bankruptcy is dangerous. Your attorney can tell you if it would be better to file before or after giving anything away. The timing is critical, and doing it improperly may put your assets at risk.

      • Bret, I filed chap 7 And 8 months later my mother passed leaving me 1/3 interest in her property. The catch is they filed a life estate deed and settlement lawyer is saying that it’s not considered inheritance and I may have to forfeit even after the 180 day window. I was never made aware of the life estate deed and did not sign anything to that effect. Curious your thoughts?

        • You need to contact your bankruptcy attorney immediately to ask for advice.

          I’m thinking that you had an interest in the property before you filed your bankruptcy, and it was never disclosed. Your mother gave you a 1/3 interest in the property and reserved a life estate for herself. At the time of filing, you had a remainder interest in the property, which should have been listed in your bankruptcy as an asset. Since it wasn’t disclosed, it remains property of your bankruptcy estate, and the 180-day rule doesn’t come into play.

          This is just a guess, and should not be taken as legal advice, because I don’t know all of the facts regarding your situation. Again, you need to speak with your bankruptcy attorney asap to see if it would be necessary to reopen your case to disclose and exempt the asset.

  36. My mom was under chapter 13 bankruptcy then had passed away a few months afterwards, she did not have a will but her house is the house ive been living in for 20 years, is there someway to save my house,

    • Probably. Talk to your mother’s bankruptcy attorney to see if it would benefit you to continue her C13 payments (bankruptcy cases can continue even after the death of the debtor.) If the case has already been dismissed or closed, speak to a local bankruptcy attorney. Depending on who owns the house today, it’s likely you can save it. Good luck!

  37. My husband was diagnosed with Stage 4 cancer in Dec. 2016 and we filed for Chapter 7 Bankruptcy in Feb. 2017 due to his being unable to work. All of our debts were credit card debt. We appeared before the court in May 2017 and it was discharged in early June 2017. He passed away at the end of June 2017. It was unexpected, even though he had cancer. We have two small children and live in KY. I received a $100,000 inheritance from his life insurance. Should I report this to our attorney? Will they try to keep some of this money? Thank you for your time.

    • I’m very sorry for your loss. You absolutely SHOULD let your attorney know. Depending on what exemptions are available, you may be able to keep all of the life insurance proceeds. But disclosure is the first step. Hiding assets is never a good idea. Good luck.

  38. Our attorney filed Chapter 7 on January 31, 2017. The discharge date was mid-June. My mother-in-law just passed away on September 8, 2017. Since her death is more than 6 months after the filing date, will the trustee use any of the inheritance to pay debtors?

    • Nope. The 180-day window was shut before you were entitled to anything from her estate. You may want to contact your attorney to get his/her opinion, but on these facts, I don’t see how the trustee would get involved.

      • Thank you!

  39. My mother died in a car accident in January 2017. I filed for Chapter 7 on 9/11/2017. I have not received any inheritance from my Mom’s will because her estate is being sued by the driver of the other car. I don’t know when or if I will receive any money. Does the 180 days start from 9/11/2017-the date I filed Ch.7? Thank you

    • I’m very sorry for your loss.

      The 180 days starts from the date the bankruptcy was filed. So if anyone dies before 3/10/18, anything you receive belongs to your bankruptcy estate.

      But in this case, the death occurred before you filed. Even if you didn’t know the value, your possible interest in your mother’s estate should have been listed with your other assets. Not disclosing an asset is a very bad idea in bankruptcy. Your attorney can give you more advice, but you need to let him/her know about this inadvertent nondisclosure asap.

      • I will do that. Will I get in trouble? I did not mean to do this wrong. Thank you for your help.

        • If you disclose the mistake before the trustee catches it, I would be surprised if you would get into any trouble. Bankruptcy courts deal harshly with people trying to cheat the system, but judges understand the difference between fraud and an innocent mistake.

  40. Thank you for this information. If you are proposing a 100% payback Chapter 13 to the courts, can you request that any inheritance not be included to the trustee if it shall happen during the 5 year plan IN the proposed agreement to the court?

    • You can request anything, but the trustee may object, arguing that you could pay the plan off faster if the inheritance were brought in. This will depend on local practice, so your attorney will be able to explain if that’s a sound plan in your district.

Leave a Reply to Lyn Cancel reply

Your email address will not be published. Required fields are marked *

*