If You Receive an Inheritance During Your Bankruptcy Case

If you inherit money or property within 180 days after filing for bankruptcy, it generally becomes part of your bankruptcy estate. In a Chapter 7 case, that means the trustee can take the inheritance unless it's covered by an exemption. In a Chapter 13 case, an unprotected inheritance can increase what you have to repay your creditors. Whether you inherited before you filed, within 180 days after, or later still, the timing determines what happens next and how much you get to keep.

Here's how the timing plays out under each chapter.

Inheritance Received Within 180 Days of Filing

If you inherit within 180 days of filing for bankruptcy, that inheritance becomes part of your bankruptcy estate—whether you're in Chapter 7 or Chapter 13—and you must disclose it to the court and trustee right away. (11 U.S.C. § 541(a)(5).)

The date that matters is the date the decedent died, not the date you actually get the money. If your benefactor died within 180 days of your filing date, you're entitled to the inheritance as of that day, even if you didn't know about the death or the property until later, or the funds don't show up for months or years.

To disclose the inheritance, you'll need to amend your bankruptcy forms. To add personal property or real property, such as land or a house, you'll amend Schedule A/B. If you're claiming the property as exempt, you'll also amend Schedule C.

Chapter 7

In a Chapter 7 case, the inheritance joins the rest of your property in the bankruptcy estate. If it fits within one of the exemptions available to you (categories of property you're entitled to keep in bankruptcy, as set out in state or federal law), you'll get to keep it. If not, the trustee can take it and hand it over to your creditors. For example, say you file for Chapter 7 on January 15, and your grandmother dies on May 1, leaving you $20,000. Even if your case has already closed and your debts discharged by then, that $20,000 becomes part of your bankruptcy estate, because your grandmother died within 180 days of your filing date. You'd need to notify the trustee and claim an exemption to protect as much of it as you can.

Chapter 13

In a Chapter 13 case, the consequences also depend on whether the property is exempt. You don't have to give up your property in Chapter 13. Instead, you make monthly payments divided among your creditors as part of your repayment plan. Your unsecured creditors (those holding debts that aren't backed by collateral) are entitled to be paid at least as much in Chapter 13 as they would have received in Chapter 7—the value of your nonexempt property.

So, if you get an inheritance that isn't exempt, you'll have to add its value to what you repay your unsecured creditors, which raises your plan payments. If the property is exempt, it has no effect on your repayment plan. For example, if your aunt leaves you $50,000 and your unsecured debt totals $30,000, an unprotected inheritance could require you to pay your unsecured creditors in full through your plan.

Inheriting Before You File for Bankruptcy

If you're entitled to an inheritance before you file, it's already part of your bankruptcy estate on your filing date. You must list it on your bankruptcy schedules and claim any available exemption to keep it, just as you would with a bank account or a car you already own. (11 U.S.C. § 541(a)(1).) 

For example, say your father died on March 1, leaving you $40,000, but the estate hasn't finished probate, and you haven't received the money yet. If you file for Chapter 7 on June 1 of the same year, you're already entitled to that $40,000 as of March 1—before you filed. It doesn't matter that the check hasn't arrived. You have to disclose the inheritance and exempt what you can under your state's or the federal exemptions, or the trustee can take the nonexempt portion to pay your creditors.

Inheritance Received After 180 Days of Filing

A Chapter 7 trustee can't touch an inheritance you become entitled to more than 180 days after you file. It's yours to keep, whether or not the property is exempt. Chapter 13 works differently: because your case stays open for three to five years, a judge can still factor a later inheritance into a motion by the trustee or a creditor to amend your plan, regardless of when you became entitled to it.

Can the Trustee Take My Inheritance After Discharge?

Yes. If the person who left you the inheritance died within 180 days of your filing date, the trustee can still claim it even after you've gotten your discharge, because the 180-day period and your discharge date run on separate clocks. Chapter 7 cases often close within about four months—well inside that 180-day window—so it's entirely possible that your Great Aunt Martha could pass on after you receive your discharge but still leave you an inheritance the trustee can reach.

The Inheritance Is More Than Enough to Pay the Debts

If your inheritance is large enough, you can keep the exempt portion, and anything left over once creditors and administrative costs are paid comes back to you.

Regardless of the size of the inheritance, you'll probably be able to exempt some portion of it. The exemption is either defined by state law or drawn from the list of exemptions in the Bankruptcy Code, depending on which of those your state allows. The Bankruptcy Code doesn't have a specific exemption for inheritances. Instead, it has a "wildcard" exemption you can use for anything not covered by the other categories.

Under the federal exemptions, the wildcard currently protects up to $1,675 of any property, plus up to $15,800 of any unused portion of the homestead exemption, for a maximum of $17,475 per person (double for a married couple filing jointly). The amount gets adjusted every three years. (11 U.S.C. § 522(d)(5); amount valid April 1, 2025, to March 31, 2028.)

Once the trustee finishes administering your bankruptcy estate—after your exemption is taken out, all creditor claims are paid, and administrative costs are covered—anything left over comes back to you.

What If a Non-Filing Spouse Inherits During Bankruptcy?

If the inheritance belongs to your spouse, who didn't file for bankruptcy with you, that money or property isn't part of your marital property or your bankruptcy estate. Even so, if it's considered your spouse's separate property but gets mixed in with your assets, the inheritance can lose its separate status. For example, if your spouse spends part of the inheritance buying you an expensive sports car, the car could become part of your bankruptcy estate.

How Can a Trustee Find Out About the Inheritance?

Trustees routinely learn about unreported inheritances because probate and bankruptcy filings are public records that anyone can access, including an unhappy relative or an attorney with an ethical duty to report what they know.

You might not be able to shield much of the inheritance from the bankruptcy trustee, but the alternative is worse. If you get caught withholding that information, the court will demand that you turn over the inheritance. It won't matter if you've already spent it; the court will expect you to replace the value. You'll also likely lose the discharge you worked so hard to get, leaving you with a worst-case scenario: you'll lose your property and still owe all the debts you brought into the bankruptcy.

Does the 180-Day Rule Still Apply If My Bankruptcy Case Is Already Closed?

Yes. The 180-day period runs from your filing date, not from the date your case closes. Most Chapter 7 cases close well before 180 days have passed, so it's possible to inherit property after your case is closed and discharge is granted, yet still owe that inheritance to the trustee if the person you inherited from died within the 180-day window.

Can I Refuse an Inheritance to Keep It Out of My Bankruptcy Estate?

In many states, you can legally disclaim (refuse) an inheritance, but doing so during an open bankruptcy case is risky. A trustee can argue that a disclaimer within the 180-day window is a transfer meant to keep an asset away from creditors, and courts in some jurisdictions treat a disclaimed inheritance as if you'd received it and then given it away. Talk to a bankruptcy attorney before disclaiming any inheritance while your case is pending.

Policy Behind the 180-Day Rule

The 180-day rule exists to discourage people from filing for bankruptcy early to protect an anticipated inheritance. Without the time limit, a debtor could file before an expected inheritance arrives to keep it out of the bankruptcy estate. The rule puts inherited property under the same exemption rules and protections as everything else you own. The same 180-day window also applies to two other windfalls: a property settlement or divorce decree involving your spouse, and a payout you get as the beneficiary of a life insurance policy or death benefit plan. If you become entitled to either type of payment within 180 days of filing, it's treated the same way as an inheritance for bankruptcy purposes. (11 U.S.C. § 541(a)(5).)

Find an Attorney

An experienced bankruptcy attorney can review exemptions to help you keep as much of your inheritance as the law allows.

Related reading:

• Bankruptcy Exemptions: What Do I Keep When I File for Bankruptcy?
• Bankruptcy for Married Couples: Filing Options