Personal Bankruptcy: The Legalities Involved With Inheritances

With national debt having climbed to over $18 trillion and still on the rise, the future of America's economy is not as stable as it seems. As Americans accumulate more and more debt, it is no wonder that America is seeing a huge influx in bankruptcy filings. If you are considering filing for bankruptcy, you need to determine whether you may be receiving an inheritance anytime soon, as it may become a part of your bankruptcy estate. Here's what you need to know.

The Timeframe of When the Inheritance is Received Plays a Huge Role

Timing is of the highest significance when considering whether an inheritance will become a part of the bankruptcy estate. Generally speaking, if you receive the inheritance within 180 days of filing for bankruptcy, the inheritance becomes the property of the bankruptcy estate. If you inherit property, you must amend Schedule A of your bankruptcy application. On the other hand, if you inherit money, you must amend Schedule B. Schedule A outlines real property and Schedule B outlines personal property. The type of property that you own is factored into whether or not you are eligible for filing for bankruptcy under chapter 7 or whether you have sufficient funds for chapter 13 instead. 

If you are filing for bankruptcy under chapter 7, the inheritance will be completely surrendered to the bankruptcy trustee if inherited within the 180 days. The trustee will liquefy the inheritance, as they see fit if the inheritance does not fit within one of the exemptions available to you, or they can abandon it if the inheritance will not warrant sufficient funds for paying back your creditors.

Once 180 days have passed, the inheritance will no longer be a part of the bankruptcy estate if you filed under chapter 7. However, the judge may amend your plan if you filed under chapter 13. The 180-day generally starts from the date that the deceased has passed on.

Solutions for Avoiding the Inheritance from Becoming Part of the Bankruptcy Estate

If you believe that you might be receiving an inheritance soon, speak with a personal bankruptcy lawyer to determine how the bankruptcy filing may affect your financial situation. There are several solutions that can ensure that your inheritance will not end up in the bankruptcy estate. They include the following:

  • Having the inheritance left to you in a revocable living trust or a spendthrift trust rather than a will. A spendthrift trust will limit your access to the inheritance, along with the access that your creditors may have as well.
  • Disclaiming your inheritance. If you don't want the inheritance to become a part of your bankruptcy trustee and go to your creditors, you can disclaim your inheritance by filing a formal notice to the probate court. This will let them know that you don't want your inheritance and are legally waiving your right to it.
  • Filing for bankruptcy before you expect to receive your inheritance. If you believe that you might receive an inheritance in the future, you might want to consider filing for bankruptcy 180 days before you expect to receive the inheritance.
  • Determining whether the inheritance can be exempted. The amount of assets that can be exempted will vary by state. For example, Florida exempts an unlimited amount of value for homestead properties as long as the property is not larger than half an acre in a municipality or 160 acres elsewhere.


Before filing for bankruptcy, speak with a personal bankruptcy attorney regarding your financial situation, especially if you expect to receive an inheritance. An experienced attorney can advise you on what your best choice may be and can help you determine how you can keep as much of your inheritance as possible without having your inheritance end up in the bankruptcy estate. The attorney can also help you figure out how your inheritance will be treated once you file for bankruptcy so you know what to expect. For more information, contact a personal bankruptcy attorney.