Bankruptcy and Inheritance in Indiana

June 8, 2016

In Indiana, we receive a lot of questions about Inheritance and Bankruptcy.   Many of our clients have asked, “Can I lose my upcoming inheritance if I file for bankruptcy?”   The answer to this questions can sometimes be “Yes.”   Therefore, it is very important to understand WHEN you can lose your inheritance if you file for bankruptcy.

Chapter 7 Bankruptcy and Inheritance

First, let’s discuss when you could lose your inheritance by filing for Chapter 7 bankruptcy.  Generally, all assets that you own, including currently due inheritances, are included in your bankruptcy.   Therefore, if you are owed an inheritance (because someone has already died), you could lose it in your Chapter 7 bankruptcy to pay back creditors.   If the person has already died (or already transferred you the property), you legally own the inheritance.  It will be taken in the Chapter 7 bankruptcy unless it is protected by a bankruptcy exemption.

What about if you have a family member that dies and leaves you an inheritance right after you filed for bankruptcy?  These situations – where someone dies and leaves you an inheritance after you filed for bankruptcy – are controlled by a simple rule.   If anyone dies within six months of filing for Chapter 7 bankruptcy and leaves you an inheritance, it becomes part of the bankruptcy.   If they die within six months of you filing, you could lose your inheritance.

Chapter 13 Bankruptcy and Inheritance

When you file for Chapter 13 bankruptcy, you are required to turn over your income and other sources of money toward a repayment plan that lasts usually 3 to 5 years.   Any time during this repayment plan, you could be required to turn over part or the entirety of any inheritance received in order to pay back your creditors.  The inheritance amount that you receive could increase the amount that you must pay towards all your creditors.

Conclusion: Talk to An Attorney

Because of the danger of losing an inheritance during bankruptcy, you should consult an Indiana bankruptcy attorney.   An attorney can help you formulate a plan to get relief from your debts.   If you must file bankruptcy, only an attorney can properly guide you whether it is better to file bankruptcy before or after your receive your inheritance.


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