Expert: Terry Leeders - 4/2/2007

Question
What are the rules regarding bankruptcy and inheritance

Answer
The timing of an inheritance is the issue.  If the person passed away prior to the bankruptcy filing, the inheritance is part of the bankruptcy estate.  The filer would need to use their exemptions to protect it.  It may be possible to use the 'wildcard' of $4000 in Illinois, and possibly one of the several insurance exemptions available if some of the inheritance was life insurance.  

Now, if the inheritance comes after the bankruptcy is filed, it may have to be disclosed to the trustee in your case for a period of time after case is over, even if you are already discharged.  Check with your lawyer for exact time frames involved.  Now, if you are doing a chapter 13, you can design your case to protect 100% of the inheritance so you wouldn't need to worry.  However, you would be paying back enough of your debt to protect that asset.