How Does a Bankruptcy Affect Inheritances?

If a Debtor inherits money or property during their bankruptcy process, it can, and often does, affect the inheritance. 

When someone files for bankruptcy, a bankruptcy estate is created. The estate consists of the Debtor’s property or assets owned. A bankruptcy estate is administered through a bankruptcy trustee, where the estate is temporarily considered a legal owner of the Debtor’s property and assets claimed. Given this, any additional assets the Debtor may receive while they remain in bankruptcy, including inheritances, extends the estate’s ownership over the same.

To avoid any inheritance from being considered within a bankruptcy estate, you may suggest that the property be left in a revocable living trust, rather than in a will. Several courts have stated that property left in a revocable living trust not to be considered part of the bankruptcy estate. The property considered can consist of cash, heirlooms, real property, and personal property. Setting up a trust can save an heir the preventable complications of dealing with an inheritance while going through a bankruptcy.

If you have filed, or plan to file, a bankruptcy and receive an inheritance, you may wish to discuss your case with an experienced attorney to determine how the inheritance will be treated within the bankruptcy. Please feel free to contact the Law Office of Ray Garcia, P.A., at 305-227-4030 or via email at legal@raygarcialaw.com for a free consultation.