Attorney at Law
Will I Lose My Inheritance in Bankruptcy?
Inheritance or life insurance money you have coming to you is generally not protected in a Chapter 7 bankruptcy. As your attorney I do have the power to protect about $1,150 maximum in any inheritance you might receive, but that is really nothing compared to the kind of inheritance you might be getting if you are concerned about this issue.
The other issue with inheritances and life insurance is that they are the exception to one of the most important bankruptcy rules, which is the rule that says in a Chapter 7 bankruptcy you cannot lose property you acquire after the bankruptcy is filed. Generally speaking, for instance, if you get injured on the day after you file bankruptcy and become entitled to a $50,000 personal injury settlement, there is no way the bankruptcy court is going to take that money away from you. But the rule is different for inheritances and life insurance proceeds: If your loved one dies within 180 days of the date you file bankruptcy and you become entitled to these kinds of funds, you have a legal duty to notify the court of what happened so they can take the money away, distribute it to your creditors, and pay you back any funds that are left over. The reason for this rule is to prevent people with dying loved ones from being sneaky and filing bankruptcy right before they inherit money in an attempt to get rid of all their debts just before they become able to pay them. However, if your loved one manages to live at least 181 days past the date you file bankruptcy, then you’re in the clear and nobody can touch that money.
If you have a substantial inheritance or life insurance coming to you there is another type of bankruptcy, called Chapter 13, that might allow you to keep all the money you have coming to you while paying off a small percentage of your debts. If this is your situation it is going to require substantial planning from an experienced attorney.