Bankruptcy and inheritance in Chapter 13 bankruptcy: If you receive an inheritance while you are in the midst of a Chapter 13 bankruptcy repayment plan, most courts will require that you pay this amount into your Chapter 13 plan. In a Chapter 13 bankruptcy case you propose a plan to repay your creditors over a period of three to five years. You make monthly payments to the bankruptcy trustee who distributes the funds to creditors. At the end of the repayment period, your debts will be discharged. To learn more about Chapter 13 bankruptcy repayment plans click here
Most people who file for bankruptcy don’t pay unsecured creditors in full. Many only pay back pennies on the dollar. The amount that you must repay to your unsecured creditors is determined by a number of factors, including the fact that you must pay all of your “disposable income” into your plan, which is calculated using a detailed formula that subtracts certain allowable expenses from your income.
What Property Is in the Bankruptcy Estate?
If your inheritance is deemed part of your bankruptcy estate, you will probably have to use it to pay at least a portion of your unsecured debt. If your inheritance is not part of your bankruptcy estate, however, you would not have to pay back an equivalent amount into your Chapter 13 plan. Whether an inheritance is included may depend on when you become entitled to it. Here are the basic items what is and isn’t in your bankruptcy estate.
Property You Own When You File Your Chapter 13 Bankruptcy Petition
When a bankruptcy case is filed in court, a bankruptcy estate is formed. The estate consists of all the property you owned at the moment the case was filed. Assets like a house, household goods, bank accounts and vehicles are in the estate, along with other rights in property, like your right to a future tax refund or your right to file a lawsuit against someone who caused you damages.
If you have already received, or are entitled to receive, an inheritance when you file for your bankruptcy case, the inheritance is part of your estate.
Inheritances Received Within 180 Days of the Bankruptcy Filing
In a Chapter 13 case, even after the bankruptcy case is filed, most assets you acquire during the case will be part of the estate, including property you purchase or receive as a gift, money you earn, and certain other rights you acquire. This is not true in Chapter 7 – most property you acquire after you file is yours to keep, with a few exceptions. Those exceptions include if you received this type of property within 180 days of filing:
an inheritance, property from a marital settlement by former spouse, life insurance proceeds or death benefits, lottery winnings, and
other rights that might be considered a windfall.
Inheritances Received After the 180- Day Period
The law is different if you received your inheritance after 180 days of filing your case. In a Chapter 7 case, any “windfall” (like an inheritance) you acquire rights to, after the 180 days, do not have to be turned over to the bankruptcy trustee.
In a Chapter 13 case, however, the bankruptcy trustee may argue that the inheritance should be part of your bankruptcy estate, regardless of whether you received it after the 180-day period. Different courts have different ruling on this point so talk to an experienced bankruptcy attorney to find out how the courts in your area deal with bankruptcy and inheritance.