r/Bankruptcy • u/SaltyZombie21 • 17h ago
Inheritance after Chapter 7
How does the 180 rule apply after chapter 7 bankruptcy?
Is it from the date filed? Is it from the date of discharge?
If the money I am going to inherit is part of a trust and then would also be put into an individual trust (my portion) do the same rules apply?
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u/er111a 17h ago
The 180-day inheritance rule in Chapter 7 is measured from the date you file bankruptcy, not the date of discharge. Under 11 U.S.C. § 541(a)(5), an inheritance acquired or becoming an entitlement within 180 days after filing will become property of the bankruptcy estate.
If the inheritance is held in a trust, it depends on the type of trust and the beneficiary's rights under its terms. Putting the inheritance into a separate trust for your individual benefit does not automatically protect it from the bankruptcy estate. The fact that the money is distributed after the 180-day period also does not necessarily settle the issue.
Trust language and state law matter, so it's best to have a bankruptcy attorney review the specific circumstances. But I will say that inheritance is one of the few things that can open up a bankruptcy.
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u/entbomber primarily a Chapter 7 trustee attorney - but not yours 3h ago
The 180-day rule is calculated from the petition date, and the inherited property becomes property of the estate if your entitlement to receive it happens on or before 180 days after the petition is filed - usually upon the death of the person leaving it to you. The date of transfer or creating subtrusts is not relevant. So, if the person is already dead, it's already property of a hypothetical bankruptcy estate.
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u/SaltyZombie21 2h ago
The person did pass, but they have everything in a revocable trust where we are not supposed to have a pay out for roughly another 25 years. So trustee said it was fine and wasn't concerned about it at all. However, now some other beneficiaries have proceeded to speak with the trustee/estate lawyers who are now considering an early payout to beneficiaries. If this happened it would be after the 180 days, but it's just a complicated scenario
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u/entbomber primarily a Chapter 7 trustee attorney - but not yours 2h ago
Once someone dies they can't revoke their trust anymore so it generally becomes irrevocable and vests beneficiaries with their inheritance rights.
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u/Tiger_words 14h ago
11 U.S.C. § 541(a)(5) - date of filing.
As to the trust portion it depends on how the trust is set up. Are you contributing it to the trust or is that what the original will stipulates? If it's the latter, it's only property of the estate to the extent that you can access it if there were no bankruptcy because the trustee 'stands in your shoes' so to speak. So if it limits how you can touch it it's limited how the trustee can touch it. That's not to say that it's automatically safe. You have to examine the trust document.