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What happens if you come into money during a bankruptcy?

On Behalf of | Mar 24, 2022 | Bankruptcy And Debt Relief

You filed for bankruptcy because you really had no means to pay back what you owed. You were out of work, and you didn’t see any way to pay back your debt without struggling for many months or years.

Then, seemingly out of the blue, you received a call that you were going to receive an inheritance. You weren’t expecting it, but it would be more than enough to repay your debts and help you get back on your feet. What should you do? Do you have to disclose this change, and will it impact your current bankruptcy?

If you’re coming into money, let your trustee know

If you go into bankruptcy and suddenly come into money, you should let your trustee know as soon as possible. It is possible that the inheritance will become a part of your bankruptcy estate. However, there is also the potential that the inheritance will be protected.

For example, if you had a loved one pass away and put the inheritance into a trust, you may not have the inheritance impacted by the bankruptcy and, potentially, you could go through with the bankruptcy without it being impacted by the large sum of money entering the trust account.

This is because trusts are designed to be protective against creditors. A trust is set up to pay out to a beneficiary, so the money you receive monthly or in a lump sum could end up affecting the bankruptcy, but money that remains in the trust may not.

This is a relatively complex area of law, so it’s important to be truthful about any potential or incoming inheritance that you know about. As soon as you know when you’ll receive it, let your attorney know, so they can contact the trustee. Generally speaking, any inheritance that you receive within 180 days of filing for bankruptcy can become a part of your estate, but becoming a part of your estate doesn’t necessarily mean that the inheritance will be lost.

Before you receive the funds, get to know more about your rights. You may be able to use an exemption or other options to protect the inheritance and move forward with your bankruptcy.