Reporting Inheritance in Bankruptcy: Timing is Everything
When you file for bankruptcy, you try to control the timing of every expense and income. Your case often hinges on having only a certain amount of money available. More can cause you to lose assets or not qualify for Chapter 7 bankruptcy. But there are always things you cannot predict, such as a death in the family or an illness. If you receive an inheritance, how will that inheritance affect your bankruptcy case?
It’s all about the timing of the inheritance. Technically, you become entitled to an inheritance upon the death of your relative, even though you may actually receive that inheritance years later. And under the Bankruptcy Code, you must report any funds you become entitled to within 180 days of filing for bankruptcy.
This means that if you file for bankruptcy and then your grandmother passes away the next month, leaving you $10,000, you must report that inheritance to the bankruptcy court, because it happened within the 180 days of filing.
Of course, those who file for Chapter 13 bankruptcy may be asked to use extra money to pay creditors, if they get that extra money during the course of their 3 to 5 year plan. That is true even if their inheritance occurs after 180 days of filing for bankruptcy, if the case is still being administered.
Under some state laws, you may be able to keep your inheritance even if you report it to the court, because some states permit exemptions for inheritance. In some states, this even depends on the type of inheritance (e.g., did you inherit through a will or through a life insurance policy?).
If you are unsure of whether you disclose your inheritance to the bankruptcy court, make sure to ask your attorney and tell him or her about the details of your inheritance. It is best to err on the side of disclosure, because not disclosing something that needs to be disclosed can result in a dismissal of your case without the benefits of a discharge.
Contact a local Arizona bankruptcy attorney to discuss your personal situation and if bankrutpcy is the right choice for you.