What happens if you receive an inheritance or other property within 180 days of the filing of your bankruptcy case?

In a chapter 7 case, the general rule is that after-acquired property (property that you acquire after the petition date of your case) is not property of the bankruptcy estate. This means that you get to keep such property. However, there is one important exception to this general rule. Certain types of property that you acquire an interest in during the first 180 days of your case become part of your bankruptcy estate and may not be yours to keep.

The specific types of property that fit this exception are:

  1. Property that you inherit;
  2. Proceeds from a death benefit plan or life insurance policy;
  3. Property from a divorce proceeding.

[1] Also note that these types of after-acquired property include property that you acquire orare entitled to acquire within the first 180 days.

Example: If your mother dies on the 179th day of your bankruptcy case, it is unlikely that you will receive possession of your inheritance within the 180 days. Doubt may exist as to what, if anything, you might eventually receive from mother’s estate. The probate process could take months or even year and you may not receive your share until it has concluded. Nevertheless, several courts have held that the key date is not the date you receive the property, but the date you were entitled to receive such property, in this instance the date of your mother’s death.

You must report after-acquired property to your attorney immediately, because it is the law[2] and because failure to do so can significantly harm your attorney’s ability to legally protect your assets from your creditors. Timing is of essence. Based on your unique circumstances you may be able to exempt all or a portion the after-acquired property[3] or you may be able pay for the non-exempt portion by converting your case to a chapter 13.

If you are in a chapter 13 case when you acquire the property, the same rules above apply with one major caveat. In a chapter 13 case all after-acquired property during your bankruptcy case becomes property of the estate regardless of whether it was acquired within or outside the first 180 days of your case.[4] However, you may be able to protect your property by amending your schedules and exemptions or, in some very narrow instances, by dismissing your case.

Again, timing is of the essence. As soon as you learn that you might become entitled to such property, make sure you call a knowledgeable bankruptcy expert to get good advice, take prompt action if needed, and protect all the property that the law allows.

For questions and additional information, please contact Clayton Everett.

CITATIONS:

  • 11 U.S.C. § 541(a)(5)
  • Bankruptcy Rule 1007(h)
  • In re Magness, 160 B.R. 294 (Bankr. N.D. Tex. 1993)
  • 11 U.S.C. § 1306(a)
  • But see In re Jacobsen, 609 F.3d 647 (5th Cir. 2010) (denying dismissal and converting to a chapter 7 for debtor’s bad faith)
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