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Inheritance and Bankruptcy: What Happens When You Receive an Inheritance During Your Bankruptcy Case?


Bankruptcy is meant to help you to discharge or re-arrange overwhelming debts fairly. To ensure fairness, Iowa courts balance helping debtors eliminate or re-arrange debts and gathering some money for creditors to share. For this reason, when you file for bankruptcy, all your non-exempt assets or property become part of the bankruptcy estate. Since inheritance is an asset, you might be wondering what happens to the inheritance you receive during your bankruptcy case.

What happens to the inheritance received by a filer generally depends on when they receive the inheritance. In bankruptcy, a 180-day rule regulates what happens to any inheritance received during a bankruptcy case. If, after filing for bankruptcy, you receive an inheritance within 180 days, you might lose the inheritance.

Any inheritance received within 180 days becomes part of the bankruptcy estate. You can only keep inheritance that is exempted by bankruptcy laws.

In a Chapter 7 bankruptcy case, the bankruptcy trustee has the authority to liquidate any non-exempt inheritance that gets added to the bankruptcy estate and pay off your creditors. In Chapter 13 bankruptcy, receiving inheritance often increases the amount debtors need to pay creditors.

Why the 180-Day Rule Exists

The 180-day rule does not exist to punish debtors but instead exists to discourage individuals from filing for bankruptcy to protect their inheritance.

What Happens if I Receive an Inheritance Before Filing for Bankruptcy?

If you receive an inheritance before filing for bankruptcy, it will be treated like all your other assets. Any non-exempt inheritance will go into the bankruptcy estate once you file for bankruptcy. In a Chapter 7 case, it will be liquidated and used to repay creditors. You will also need to consider your inheritance when preparing a repayment plan in a Chapter 13 case.

What Happens if I Receive an Inheritance After the Bankruptcy Process?

If a loved one leaves you an inheritance after 180 days, you may not have to worry about losing it regardless of whether it is exempt or non-exempt. Under Chapter 7 bankruptcy, any inheritance you receive from day 181 will not go into the bankruptcy estate.

Under Chapter 13 bankruptcy, the judge may consider any non-exempt inheritance you receive after 180 days if the trustee or a creditor forwards a motion to ask the court to amend your repayment plan. A trustee or a creditor would mostly decide to forward such a motion when a debtor’s assets or income increase during the repayment plan period.

If someone leaves you an inheritance before or after you decide to file for bankruptcy, you should inform the trustee about it once you file for bankruptcy. Do not attempt to lie about such information because hiding assets is bankruptcy fraud.

Talk To a Southeast Iowa Bankruptcy Lawyer Today

If you are thinking of filing for either a Chapter 7 or a Chapter 13 bankruptcy and are worried about what happens to inheritance once someone files for bankruptcy, you should speak to a Southeast Iowa bankruptcy attorney who can provide you with all the information you need. Contact Noyes Law Office, P.C., today to schedule a consultation.




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