If you've got an inheritance coming your way soon and you're thinking about bankruptcy, it may become part of the bankruptcy estate and could potentially be seized. Learn about how this works and how to avoid losing your inheritance.
If you are contemplating bankruptcy or are in a bankruptcy proceeding, you have a legitimate concern regarding any inheritance that you may be anticipating, whether it be a valuable family heirloom or sizable sum of money. In general, an inheritance is considered an asset of the estate and can be used by the bankruptcy trustee to satisfy your debts. However, whether or not the inheritance is subject to forfeiture to the bankruptcy estate depends in large part on timing and the chapter under which you have filed or will file.
Under a Chapter 7 bankruptcy, if you become entitled to an inheritance within six months (180 days) of filing for bankruptcy, the inheritance can be seized by the bankruptcy trustee and contributed towards the sum of money owed to creditors. The key date is the date on which you become "entitled" to the inheritance, in other words, the day on which your loved one passed away. Even if you do not receive the inheritance until months or years later, it will be subject to forfeiture to the bankruptcy estate if that right accrued during the 180-day period.
Learn more about Chapter 7 Bankruptcy.
Given the nature of a Chapter 13 bankruptcy proceeding, the rule in this case is slightly different. A Chapter 13 bankruptcy is essentially a work out plan that allows you to continue paying on debts owed over a period of time. As such, if you become entitled to an inheritance anytime during the repayment period, the value of the inheritance may be applied to calculate the amount you must pay into the Chapter 13 payment plan, even if you become entitled to the inheritance after the expiration of the 180-day period.
Learn more about Chapter 13 Bankruptcy.
As a last resort, it is possible for you to decline to accept the inheritance. Particularly for valuable family heirlooms or property that has been in the family for years, people would generally rather see it go to another family member rather than fall into the hands of creditors.
Learn more about Filing Bankruptcy in California.