We received an inheritance in 2006. It is now
spent. How long before I would not have to mention it in a Chapter 7 filing?
When you (or anyone else) receive an inheritance while you
are in a difficult financial position, there are several factors to consider.
Without knowing more of the details of your case, I can't advise you specifically.
However, I'll explore a typical scenario and that hopefully will help you determine
what to do next.
Suppose "Steve" is considering
filing bankruptcy when a distant relative dies
and leaves him a substantial sum of money. Steve's
goal is to protect as much of his inheritance
as possible and avoid using the money to pay off
To save as much of the money as
possible, Steve will have to be aware of the following
The state he lives
in: If Steve lives in California and qualified for a Chapter 7 bankruptcy on Monday,
then received $20,000 from a dead uncle on Tuesday, he could file for bankruptcy
on Wednesday and still keep the $20,000. However, if Steve lived in Florida, he
would probably lose at least $19,000 of that $20,000.
of the inheritance: If Steve inherits more
than an amount he can protect in his state of
residency, then there is another set of more complicated
issues to consider and Steve would be well-advised
to meet with an attorney who specializes in asset
The time between
the inheritance and the filing: Steve might
think that waiting longer to file makes it less
likely that a trustee would try to seize any of
his inheritance to pay his creditors. However,
the trustee is less concerned with the time and
much more concerned with how he spent the money.
If he is not working or on a fixed income, then
it will be very possible for him to spend the majority of the inheritance on normal,
everyday expenses like rent, food, car repairs, etc. and then file for bankruptcy
right after the money is gone. The trustee normally will not have an issue with
his case if he spent the money on legitimate expenses.
he has purchased: If Steve has purchased
any asset with lasting value, such as a car or
a boat, or any asset that could increase in value,
such as a house or a piece of art, the trustee
is very likely to go after that asset.
I hope my examination of "Steve's" situation gives you a sense for what
to do. Basically, if you haven't bought any significant assets, it should be fine
for you to file bankruptcy right away. If you do have assets, you may want to
speak with an attorney to decide how best to protect them.
I can imagine that if you've received an inheritance, spent it and are still considering
bankruptcy, you are probably in a very tight spot. Since bankruptcy filers usually
face a period of unemployment, an illness or a divorce, you are doing nothing
wrong when you use an inheritance to get by. Just be sure that you are not acting
recklessly with credit card activity close to or at the same time you file your