Inheriting money usually feels like a financial boost, but if you are in the middle of a bankruptcy case, it can create complications. What happens next depends on the timing of the inheritance and the type of bankruptcy you filed.
Timing Matters
In Chapter 7 bankruptcy, the court looks at your assets at the time of filing. However, inheritances received within 180 days of filing may still become part of the bankruptcy estate. That means the money could be used to repay creditors, even if you did not expect to receive it when you filed.
In Chapter 13 bankruptcy, the rules are different. Because your repayment plan lasts several years, any inheritance received during that period may need to be disclosed and included in your payments.
Why Disclosure Is Critical
Some people are tempted not to tell the court about an inheritance, especially if it comes as a surprise. But failing to disclose it can result in serious consequences, including dismissal of your case or accusations of fraud. Transparency is the only safe approach.
Protecting Some or All of the Inheritance
In certain cases, exemptions may allow you to keep some or all of the inherited money. Exemptions vary, and whether they apply depends on your unique situation. Even if the inheritance becomes part of your bankruptcy estate, the rules are designed to balance creditor repayment with your ability to move forward.
Planning Ahead
If you know an inheritance may be coming, it is important to discuss it before filing for bankruptcy. Timing and strategy can make a big difference in how it affects your case.
Inheritances can complicate bankruptcy, but with careful planning and full disclosure, you can avoid unnecessary setbacks. The key is understanding how timing and legal rules work together so you can move forward with clarity.
