Filing for bankruptcy can provide much-needed financial relief, but many people worry about how receiving an inheritance could impact their case. Whether you expect to inherit money, real estate, or other assets, it is important to understand how Minnesota bankruptcy law treats inheritances. The timing of when you receive or become entitled to an inheritance can make a significant difference in your bankruptcy case.
The 180-Day Rule
One of the most important rules regarding inheritances in bankruptcy is the 180-day rule. Under federal bankruptcy law, if you become entitled to receive an inheritance within 180 days after filing your bankruptcy petition, that inheritance generally becomes part of your bankruptcy estate.
This rule applies even if you have not actually received the inheritance yet. What matters is when the person passed away. If the individual dies within 180 days after you file bankruptcy, your right to inherit may become property of the bankruptcy estate.
For example, if you file for Chapter 7 bankruptcy on January 1 and a relative passes away on April 15, any inheritance you are entitled to receive may need to be disclosed to the bankruptcy trustee because it falls within the 180-day period.
What Happens in a Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, the trustee is responsible for identifying and administering non-exempt assets that can be used to pay creditors. If an inheritance becomes part of the bankruptcy estate, the trustee may be able to use some or all of those inherited assets to satisfy outstanding debts.
Whether you get to keep any portion of the inheritance depends on several factors, including the type of property inherited and whether any Minnesota or federal bankruptcy exemptions apply. Every situation is different, which is why it is essential to speak with an experienced bankruptcy attorney before filing if you anticipate receiving an inheritance.
What About Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy works differently because it involves a repayment plan that typically lasts three to five years. If you receive an inheritance while your Chapter 13 case is pending, you generally have a duty to disclose it to the bankruptcy court and trustee.
Depending on the amount of the inheritance and your financial circumstances, the trustee may ask the court to modify your repayment plan. In some cases, the inheritance could increase the amount you are required to pay unsecured creditors.
Do I Have to Tell the Bankruptcy Court?
Yes. Honesty and full disclosure are critical in every bankruptcy case. Failing to disclose an expected or received inheritance can have serious consequences, including dismissal of your case, denial of your bankruptcy discharge, or even allegations of bankruptcy fraud.
If you know that you may receive an inheritance, or if a loved one passes away during your bankruptcy case, notify your bankruptcy attorney immediately. They can advise you on your legal obligations and help protect your interests.
Talk to a Minnesota Bankruptcy Attorney
Inheritance issues can quickly complicate a bankruptcy case, especially when timing is involved. An experienced Minnesota bankruptcy attorney can evaluate your unique circumstances, explain how state and federal bankruptcy laws apply, and help you make informed decisions about when to file.
If you are considering bankruptcy and have questions about an inheritance, don’t wait until after filing to seek legal advice. Careful planning can help you avoid surprises and ensure your bankruptcy case proceeds as smoothly as possible. Call 612-213-3480 today for a free consultation with one of our attorneys.