How are Inheritances treated in chapter 7 bankruptcy?

How will my inheritance be treated in chapter 7?

How will my inheritance be treated in chapter 7?

As an Asheville bankruptcy lawyer, I’m often asked how inheritances are treated in chapter 7 bankruptcy.

The answer has to do with what is called “property of the bankruptcy estate” as defined by 11 USC 541. With 2 exceptions property of the estate consists of all assets, claims, and other rights of the debtor as of the date of the filing of the petition. Property of the estate is what the bankruptcy Trustee has an obligation to gather and distribute to the creditors. So, if you owned a lottery ticket that you purchased the day before filing which later turned out to be a winning ticket it is property of the estate. On the other hand, if you purchased a winning lottery ticket the day after filing the petition it is not property of the estate and all of the proceeds belong to the debtor.

Now to the 2 exceptions: (1) Assets, legal rights, and claims that arise out of a separation or divorce that occurs within 6 months after filing; and (2) Rights to participate in a decedent’s estate (i.e., inheritance rights) that arise within 6 months after filing. So, if a debtor’s rich uncle dies within 6 months of filing, any inheritance rights of the debtor are property of the estate. If the same rich uncle dies 6 months and 1 day after filing, the inheritance rights belong to the debtor.

Contact me if you have bankruptcy questions.