Inheritance May Affect Bankruptcy Filing

Filing bankruptcy is complicated, and receiving an inheritance does affect your filing.

Receiving an inheritance before, during or after a bankruptcy may end up giving the debtor some difficulties. How that inheritance is treated when the debtor files a Chapter 7 bankruptcy will depend on when the bankruptcy was filed and when the person who bequeathed the money died. There have been instances where receiving an inheritance resulted in a discharged debtor having to repay the debts because their inheritance would allow them to pay everything off.

If you receive an inheritance before your bankruptcy case is discharged, by law you must declare it as a part of your bankruptcy estate. This means having your Iowa bankruptcy lawyer file revised paperwork for your bankruptcy. Ultimately, the amount of money you receive is taken into account when it comes time to figure out Chapter 7 eligibility and whether or not the funds may be used to pay creditors.

It does not matter whether or not you have received the money or property. The information must still be included in your filing. A pending inheritance still counts in calculations for bankruptcy eligibility. If the person bequeathing the money or property is still alive, you do not need to list the possible inheritance.

If you receive an inheritance within a window of 180 days after filing for bankruptcy protection, that bequest becomes a part of your bankruptcy. This is usually referred to as the 180-day rule, and it acts as a way to stop people from filing Chapter 7 to avoid paying creditors with their bequest. If the inheritance is not disclosed and the bankruptcy trustee becomes aware of it, you may be forced to hand it over and have your bankruptcy discharge revoked.

If your inheritance does not arrive during the bankruptcy process and you receive it more than 180 days after your petition was filed, there is no obligation to report it to the trustee or change your Chapter 7 filed documents. Additionally, some courts have determined that an inheritance that takes the form of certain trusts is not covered by the 180-day rule.

When in doubt about how an inheritance may affect filing for bankruptcy, contact an experienced Iowa bankruptcy lawyer and find out what rules and regulations apply to your situation.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit or call 1.877.888.1766.

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