A tricky issue in bankruptcy is the issue of inheritance money. If you inherit money and then file for bankruptcy, there is no guarantee that money will be protected. The same is true if you inherit money after a bankruptcy filing. However, this does not mean that a person should shy away from filing for bankruptcy strictly because of inheritance money. There are several factors that influence whether or not inheritance money is at risk in bankruptcy.
One factor to be considered is the time between the filing and inheritance of the money. The general rule is that if the inheritance was received within six months of filing, it is considered property of the estate and is eligible for seizure. In a Chapter 7 case, inheritance money received within 180 days after the filing may be eligible for liquidation by creditors. In a Chapter 13 case, the inheritance is simply used to determine the overall amount that will be repaid to the creditors. However, there are some additional factors that influence these rules.
If the inheritance money boosts his overall financial standing more so than his regular income, he may not be eligible to file for Chapter 7. If a person enters bankruptcy with inheritance money that is more than the amount allowed for protection under the bankruptcy exemption laws, some of that money may not be protected from creditors. However, monies from retirement, VA or Social Security benefits plans may be exempt during the bankruptcy process. Similarly, the bankruptcy court may deem the inheritance money exempt if the filer needs to money for essential living expenses due to unemployment or disability.