You may be able to keep an inheritance in Bankruptcy or funds from a lawsuit if you know how to exempt it or if you know how to time the filing of your bankruptcy. Whether you file for Chapter 7 or Chapter 13 bankruptcy also determines whether or not you keep the property. Of course, you start life over by filing exemptions to keep a certain amount of property.

Determining if You Can Keep Your Inheritance in Bankruptcy

Interestingly, exemptions are larger under Kentucky and Federal rules. But, you still have to know how to file bankruptcy and also when to acquire the property. Again, timing is so important! For instance, inheritances acquired within 180 days after filing a petition are property of the estate under 11USC §541(a)(5)(A) in a Chapter 7 case.

Inheritances from death within six months after the discharge should be reported to the trustee and are property of the estate and trustee. Furthermore, inheritances, tax refunds, lottery tickets, and personal injury lawsuits are property the court wants to see, although you may not have the money on the day of filing. However, you must list these assets and exempt them or you will lose them.

Chapter 7 • Guidelines for Keeping Your Inheritance

If you become entitled to receive an inheritance before filing for Chapter 7 bankruptcy, you’ll have to exempt it with a bankruptcy exemption to keep it. Additionally, unlike most other property, a trustee can take an inheritance up to 180 days after you file.

Again, when you file for Chapter 7 bankruptcy, almost all of your assets become part of the bankruptcy. Usually, when filing Chapter 7, you don’t need to worry about the property or funds you acquire afterward.

But, here’s the caveat, there is a special bankruptcy rule that extends the date 180 days for inheritances. Therefore, in order to keep it, you have to exempt it. Also, note that the entitlement date is the date the person passed—not the date you collect the inheritance. Usually, the date you collect the inheritance is months later.

About the 180-Day Rule and Why it Exists

The 180-day rule was for the purpose of stopping people from filing for bankruptcy if they know they’re going to get an inheritance. Otherwise, people file for bankruptcy to protect their inheritance from creditors. The following shows how this rule affects any inheritance. You will note that these rules are based on the entitlement date.

  • Before filing for bankruptcy – It’s the same as with any other property in that you must get an exemption to cover it. If you can’t exempt it, it goes to the creditors.
  • More than 180 days after your filing date – It is not part of the bankruptcy estate. You can keep it.
  • Within 180 days of the bankruptcy filing – The inheritance is part of your bankruptcy estate. You must also amend your bankruptcy paperwork even if your case is closed. However, you can keep it if you can exempt it. Otherwise, it goes to creditors.

Chapter 13 • Estate Includes Everything in §541

For Chapter 13 cases, the estate includes everything in §541, plus all property acquired by the debtor after filing a Chapter 13 but before Chapter 13 is closed under 1306(a)(1). §1325(b) requires all of a debtor’s “disposable income” to go towards payments. Property acquired during Chapter 13 must be paid to creditors if you are unable to exempt the property.

The property also includes other property you acquire such as:

  • Lottery winnings – In re Koonce, 54 BR 643 (Bankr DSC 1985)
  • Lawsuit settlements, insurance settlements, – In re Nott, 269 BR 250, 257, 258 (Bankr. MD Fla 2000) and In re Euerle, 70 BR 72 (Bankr DNH 1987) and
  • Large gifts or loans – Doane v Appalachian Power Co, 19BR 1007 (Bankr WD Va 1982)

Resources for Bankruptcy

Louisville Kentucky Bankruptcy Forms

Bankruptcy Manual

Other Related Information

Real Estate Workouts Avoiding Foreclosure

Bankruptcy Filing Time Limitations

How to Get Money Back from a Commissioner Foreclosure Sale

File Bankruptcy on Income Taxes

If you are facing bankruptcy, don’t delay because timing is so important. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905