I Filed for Bankruptcy: Can I Still Receive My Inheritance?

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If you have recently filed for or been through bankruptcy, you may be wondering what the “rules” are on any money that you earn or receive after the bankruptcy has been discharged.

The Bankruptcy Court has implemented some rules regarding monies acquired after bankruptcy in order to prevent fraud. Anytime someone individually or as a business files for bankruptcy, a bankruptcy estate is created. A bankruptcy estate includes all of the assets that the debtor possesses at the time the bankruptcy case is filed with the court. “The Estate” becomes the legal owner of all of these assets and properties, which gives the Bankruptcy Court control over them.

If you’re wondering what assets/property are included in the bankruptcy estate, Section 541 of the bankruptcy code is where to look. All inclusions and exemptions are listed in that section. All assets that are included in the bankruptcy estate will be controlled by your bankruptcy trustee, and can be used to pay off creditors to whom you owe money.

Within Section 541 of the bankruptcy code is a section known as the “windfall provision.” [Sec. 541(a)(5)]. This section states that, “within 180 days following the date of bankruptcy filing, the bankruptcy estate includes any bequest, devise, or inheritance; acquisition of property resulting from a property settlement agreement via divorce; and proceeds as a beneficiary of a life insurance policy or other death benefit plan.”

In layman’s terms, if you file for bankruptcy (focusing on Chapter 7 here; Chapter 13 can be slightly more complicated) and receive an inheritance within the 180 days following your filing date – that money will be subject to the bankruptcy estate and must be used to pay back your creditors.

On the other hand, if your spouse, parent, or other close family member should unfortunately pass away within the 180 days period, with you as the beneficiary on a term life insurance policy, that money will be exempt from creditors, and thus you would likely receive at least some of that windfall.

Why only ‘some’? Under the federal exemption scheme, monies received from a life insurance policy are considered exempt only to the extent necessary to provide the beneficiary/debtor and his dependents with a reasonable amount of support. So, you’re not going to strike it rich, but you should be able to receive some of the money.

Proceeds that may be left to you directly via a Last Will and Testament are subject to the bankruptcy estate (if within 180 days since the date of filing), minus any of these specific proceeds that aren’t considered exemptions.

Generally, income that you generate after filing for bankruptcy is yours to keep, but there are exceptions to even this rule. For more information about what monies will become property of the bankruptcy estate, call George Veitengruber to set up an appointment. Getting a free consultation is as easy as “liking” Veitengruber Law on Facebook. We look forward to meeting you and getting you on your way to financial freedom.

Image Credit: EJP Photo
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3 Responses to I Filed for Bankruptcy: Can I Still Receive My Inheritance?

  1. Pingback: If I File for NJ Bankruptcy, Will I Lose My Car? | Veitengruber Law

  2. Pingback: My Brother is Bankrupt: Can his Creditors Seize our Family Trust? | Veitengruber Law

  3. Pingback: Do My Brother’s Creditors Have a Claim to My Inheritance? | Veitengruber Law

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