Handling Inheritance Money In Bankruptcy

When filing for bankruptcy there are many things that need to be considered in order to get the most out of the case. Although some property and funds are exempt from liquidation in bankruptcy, there are some that may not be protected. One example is inheritance money. How these funds are handled depends on the type of bankruptcy filed and when the funds were acquired.

Type Of Case

Inheritance funds are required to be reported on a bankruptcy petition. If you file for Chapter 7, these funds will be considered income and used to determine your overall ability to repay creditors. Depending on your financial situation, these funds could be used to repay creditors. If you file for Chapter 13, these funds will may  not be used directly to pay creditors, but can influence your repayment plan and increase the amount you pay creditors each month.

Timing Of Funds

Inheritance money that is received within 180 days of filing for Chapter 7 bankruptcy becomes property of the estate, meaning is actively considered part of your income or assets.  Since inheritance money is not typically exempt, these funds may be distributed to creditors. However, inheritance funds received after you file and complete a Chapter 7 case will have no bearing on your case or what was paid to creditors. In a Chapter 13 case, money received 180 before filing will be used to evaluate your overall repayment plan total.  Any inheritance money received after filing for Chapter 13 will also likely increase what you owe creditors. This is because any change, either increase or decrease, in income or assets in a Chapter 13 bankruptcy calls for a review of the repayment plan, which could be adjusted accordingly.