What Happens if I Do Not Disclose an Inheritance to the Bankruptcy Trustee?
Inheritance During Chapter 7
- When you file a bankruptcy petition, you create something known as the bankruptcy estate. The court will administer your bankruptcy estate, which includes all of your assets at the time you file your petition until the conclusion of your case. The court is entitled to do this because in Chapter 7 bankruptcy you give the court the right to pay off your creditors via a liquidation of your assets. Although bankruptcy laws known as exemptions give you the right to protect at least some of your property, most valuable assets belong to the court for purposes of distribution. If you receive an inheritance during your Chapter 7 case, you must surrender it to the court if you cannot exempt it. If you neglect to tell your trustee about your inheritance and the court finds out, your case will usually be dismissed, and you will lose your opportunity for a discharge. Additionally, if your oversight is considered fraudulent, you may subject yourself to criminal charges.
Inheritance After Chapter 7
- For the most part, assets you earn or receive after your Chapter 7 bankruptcy discharge are free for you to keep. However, an inheritance is a different matter. Any inheritances you receive -- or are entitled to receive -- within 180 days of filing your bankruptcy petition are still considered to be part of the bankruptcy estate. As such, you are still liable to lose any inheritances you receive in the six months after you file Chapter 7 unless you legally exempt them under your state's bankruptcy laws. Even though you already have your discharge, the court has the right to reopen your case and revoke your discharge if you do not disclose your inheritance to the trustee.
Inheritance During Chapter 13
- Chapter 13 bankruptcy has different debtor protections than Chapter 7. One of the main benefits of Chapter 13 is that you can keep your assets rather than subjecting them to liquidation. In this sense, you can keep your inheritance if you receive it during your Chapter 13. However, Chapter 13 does require you to pay most of your available income to your creditors for a period up to five years. If your income increases due to inheritance, this will most likely increase the monthly payment you owe, so you must inform your trustee of your inheritance. As with Chapter 7, failure to disclose an inheritance can result in the denial of your discharge.
Inheritance After Chapter 13
- After a Chapter 13 discharge, there is no mandatory reporting of inheritances. Unlike the six-month period after a Chapter 7 discharge in which you must disclose an inheritance, money you receive after your Chapter 13 is yours to keep. Part of the reason for this is the duration of a Chapter 13 bankruptcy, which can run up to five years. While debtors may purposely file Chapter 7 if they reasonably anticipate an inheritance within a few months, predicting the receipt of an inheritance five years in the future is difficult. Since the risk of fraud is therefore minimal, the bankruptcy code includes no stipulation for the reporting of inheritances after a Chapter 13 discharge. You will face no penalty if you do not disclose this type of inheritance to your bankruptcy trustee.