Can I Protect an Inheritance From Being Liquidated During Bankruptcy?

If you inherit money from a person who died within 180 days of the date that you filed for bankruptcy, you must inform the bankruptcy court about the money.  The money you inherited becomes a part of your estate, and thus is eligible to be distributed amongst your creditors.

If you expect to inherit money within the 180-day period after filing for bankruptcy, there are steps you can take to try an avoid having the money dispersed to your creditors.

1. You can disclaim the inheritance.  There is no law that states that you must accept an inheritance.

2. You might be able to claim an exclusion on certain items or up to certain amounts. However, it should be mentioned that it is up to the bankruptcy trustee to decide which of your assets to liquidate.

If your loved one is still alive, but knows he or she does not have much time left, there are things he or she can do to help.  For example,

1. Your loved one could cross you out of his or her will, redirecting your inheritance to another person in your family.  That person can later gift you the money after your bankruptcy is final.  Once a bankruptcy has been made final, the court cannot liquidate any gifts or inheritances you receive.

2. Your loved one could set up a spendthrift trust for you.  This type of trust is out of creditors' reach.  However, you will need an attorney to help your loved one set up this trust.

As long as you do not hide your inheritances from the court, you will not get in trouble with the law. You have every right to plan accordingly so that your inheritance is not liquidated by the bankruptcy court.  You will only face criminal charges if you intentionally hide your inheritance, as you have a legal obligation to report it.

If you have any additional questions about bankruptcy, click here to find a bankruptcy lawyer near you!