,

Ask Sacramento Bankruptcy Attorney – What happens to Inheritance during and after Bankruptcy?

When a debtor becomes entitled (even though you have not received it) to an inheritance within 6 months of filing Chapter 7 Bankruptcy, the inheritance becomes a part of the bankruptcy estate.  If you do not have enough exemption to protect all of the inherited assets, the non-exempt portion of the inherited assets will be used to pay the creditors.  11 USC 541(a)(5).

If you becomes entitled to an inheritance during the duration of your Chapter 13 Bankruptcy, the inheritance becomes a part of the bankruptcy estate and any non-exempt portion must be used to repay the creditors through the Chapter 13 Bankruptcy Plan.

You must notify your attorney immediately when you become aware of potential inheritance.  Otherwise, you might not only lose your discharge but also face a hefty penalty by the Bankruptcy Court.

An exception to this general rule is if the inheritance is through a spendthrift trust because it is not property of the bankruptcy estate.  Therefore, proceeds in the spendthrift thrust cannot be used to pay the creditors.

For more information, schedule a consultation with Muoi Chea Bankruptcy Attorney in Sacramento, Stockton or Fairfield California Offices.