Expert: Norma Duenas - California Bankruptcy Attorney - 11/17/2009

Question
I am an only child. I am considering filing for bankruptcy and getting a divorce. If I file bankruptcy and receive an inheritance, will it be considered with the bankruptcy? Or if I set up the inheritance as a trust to my children, would that protect it?

Answer
If you inherit property within 180 days of filing your bankruptcy petition then the inheritance can become property of the bankruptcy estate. Depending on whether you are filing a Chapter 7 or a Chapter 13, the effects will be different. In a Chapter 7 the trustee would have a right to take an interest in the assets you inherited outside of what could be protected with exemptions. In Chapter 13 it could affect how much you will have to pay over to creditors. Setting up a trust fund to protect any inherited property will not serve your desired purpose in bankruptcy.  The transfers into a trust can be considered fraudulent transfers and depending on your state the look back period generally is 4 years.

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