Inheritance in a Chapter 7 Bankruptcy

Often times, the situation of receiving large inheritances while in a Chapter 7 bankruptcy comes up.  Whether there was a death in the family, or there was a large suit you received compensation from, receiving a large, lump sum of money while in a Chapter 7 bankruptcy can become an issue; however, it does depend on a few things.  A few factors that are taken into account are first, where the money is coming from, and, second, when you became entitled to the money.

As an example, if the money you are set to inherit is from something, other than an inheritance, and you became entitled to after your case was already filed, it is likely not part of the bankruptcy estate.  However, if you are entitled to receive an inheritance from a family member or loved one and the person passed away before you filed the bankruptcy or within 180 days of when your case was filed, chances are the inheritance will become part of the bankruptcy estate.  When the funds become part of the bankruptcy estate this means that you will have to turn them over to your trustee who will them disburse them to your creditors.  If it is determined that the inheritance, which is an asset, is a part of the bankruptcy estate, clients usually want to know why they have to turn over the money and what will happen if they do not turn over the money. The trustee’s job is basically to be the middle man between you and your creditors. The trustee is supposed to look for assets that could be liquidated and then disbursed to all or some of your creditors. If you choose not to turn over the asset to your trustee, he or she can dismiss your case or deny or revoke your discharge. Therefore, it is crucial that any property that is determined to be part of your bankruptcy estate is turned over to the trustee unless otherwise ordered by the court.

Determining which assets are part of your bankruptcy estate can be extremely difficult, and very costly if determined inaccurately. Before spending any money that may be determined to be a part of your bankruptcy estate, contact your bankruptcy attorney right away.  It is always best to check with your attorney regarding spending potential assets before you spend them.   If you are considering filing for bankruptcy and have questions about your potential assets, contact our office for a free consultation.

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