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Bankruptcy and Your Inheritance

Written by Charles Nguyen | March 8, 2022 at 1:30 PM

If you receive an inheritance before filing bankruptcy, whether it’s cash or physical property, then those items may become part of your bankruptcy.  

For example, let’s say you inherit $10,000 and a watch from your grandfather’s estate.  And, then you spend down the cash by paying bills, and bought a new laptop.  After all of that, you now have $3,000 in cash, a new laptop and a watch.  If you decide to file a Chapter 7 bankruptcy, then those assets are now considered property of the bankruptcy estate; however, there are exemptions which allow you to keep some property.  If you’re able to apply federal exemptions, then you most likely won’t lose any of those items.  However, if you have to apply Minnesota exemptions, you would probably end up losing those items.

 

What happens if you receive an inheritance after filing a Chapter 7 bankruptcy?  Well, if you receive an inheritance within 180 days after filing your case, then that inheritance would be property of the bankruptcy estate.  For example, you filed on January 1, 2022 and you received a discharge on April 1, 2022.  Then, 10 days later your grandfather passes away and you receive $25,000 from his estate.  Because you inherited that amount less than 180 days from the day you filed, and assuming you don’t have any exemptions to protect it, that $25,000 is now property of the bankruptcy estate.  Same scenario but let’s say you received the inheritance on December 1, 2022.  In this case, because you received the inheritance more than 180 days, then it’s not considered property of the bankruptcy estate and you get to keep it.

 

In a Chapter 13 bankruptcy, which is usually an affordable repayment plan, you wouldn’t lose those items, but you would have to pay the value of those assets you would’ve lost in a Chapter 7 over a period of 3 or 5 years.  

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So, if you’re thinking of filing for bankruptcy, and or if you have questions or are ready to get your life back, reach out to Minnesota’s nicest bankruptcy law firm by going to www.lifebacklaw.com.  You won’t regret it!