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Inheritances received after bankruptcy usually become part of the bankruptcy estate and must be turned over to the trustee. In a Chapter 7 bankruptcy, an inheritance received within six months of filing must be disclosed, while in a Chapter 13 bankruptcy, an inheritance must be reported even if it is after 180 days. Some assets are exempt from seizure by the bankruptcy court, but obligations such as child support, alimony, and taxes cannot be relieved by filing for bankruptcy. An exception to the law governing inheritance after bankruptcy may be sought if the deceased person signed a death payment clause.
If someone receives an inheritance after bankruptcy, it usually becomes part of the bankruptcy estate and must be turned over to the bankruptcy trustee, although time limits apply for some types of bankruptcy cases. When a debtor files for bankruptcy which pays off all of his debt, the inheritance after filing for bankruptcy must be repaid if it occurs within six months of the filing date. For those who file for bankruptcy to settle debts and prepare a payment plan, the term does not apply and all assets received by will are used to repay creditors.
Under US tax laws, it is illegal to hide assets, including any money you bequeath after bankruptcy. Even if the distribution of the estate is not finalized within the 180 day deadline, it still becomes part of the bankruptcy estate and must be used to offset the debt. Probate taxes may also be due before assets are distributed to the beneficiaries of a will. Federal probate laws require probate taxes if the inheritance is more than a certain amount. State laws may vary by region.
In a Chapter 7 bankruptcy, the debtor’s assets are sold and the proceeds used to pay off outstanding debts. If the debtor receives an inheritance within six months of applying for relief, he must disclose that money to the case-handling liquidator. The omission constitutes fraud punishable by imprisonment.
A Chapter 13 bankruptcy rearranges debts and allows the debtor to pay a certain percentage of what he owes to creditors. If you receive an inheritance after bankruptcy in this type of filing, you must also report it, even if it is after 180 days and the bankruptcy has not been resolved. Typically, inherited money increases the percentage of payments the debtor is making.
Bankruptcy allows those burdened with excessive debt to start over. Sometimes illness or unemployment forces a person to file for bankruptcy. Some assets are exempt from seizure by the bankruptcy court and may include the principal home of the depositor. Some obligations cannot be relieved by filing for bankruptcy, such as child support, alimony, federal or state taxes owed, and some student loans.
An exception to the law governing inheritance after bankruptcy could be sought if the deceased person signed a death payment clause. This usually applies to bank accounts set up with a specific language. A bankruptcy attorney and the bankruptcy trustee can determine whether assets obtained in this way are exempt or part of the bankruptcy estate.
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