What Happens When You Inherit Property While in Bankruptcy?
When you file for bankruptcy protection everything that you own becomes property of your bankruptcy estate. But what happens to property you acquire after you file bankruptcy? Typically, after acquired property is of no concern; however, if you inherit property after your case is filed timing becomes important.
11 U.S.C. § 541 puts forth a complete list of what property belongs to the bankruptcy estate. Section (a)(5)(A) states that any property you have a right to acquire within 180 days after the date of your filing by bequest, devise, or inheritance is property of the bankruptcy estate. A common question you may hear at your bankruptcy hearing is “do you have the right to inherit any property?” or “If you have the right inherit property within 180 days you have the responsibility to let your attorney know, and he/she will let me (the Trustee) know.”
Breaking It Down
Now, if you have the right to inherit anything within 180 days of your case filing date you still have the opportunity to protect the property using your exemptions. You have to wait and see what you inherit, and then see what exemptions you have available to apply towards this newly acquired assets. The sooner you let your bankruptcy attorney know what you are inheriting, the quicker you will know if you will be able to keep it or not.
Example 1: if you file bankruptcy on January 1, 2015 and a family member passes away on May 1, 2015 and you inherit property from them, you have to inform your attorney and case trustee of the property you are inheriting. Even if you don’t receive the property until a later time, the fact that you have the right to acquire the property within 180 days creates an obligation to report this information to the court.
Example 2: if you file bankruptcy on January 1, 2015 and a family member passes away on August 1, 2015 and you inherit property from them, you don’t have to report this information to the court since the right to inherit arose more than 180 days after you filed your bankruptcy case.