Filing for bankruptcy can bring much-needed relief from overwhelming debt, but life does not pause once your case is underway. One situation that often raises questions is receiving an inheritance after filing for bankruptcy. In New Jersey, whether that inherited money affects your bankruptcy depends on timing, the type of bankruptcy filed, and how the funds are handled. Understanding these rules is essential to protecting your financial fresh start.

Why Timing Matters in Bankruptcy Inheritance Cases

Timing plays a critical role when it comes to inheritance and bankruptcy. Under federal bankruptcy law, if you become entitled to an inheritance within 180 days of filing your bankruptcy petition, that inheritance may be considered part of the bankruptcy estate. This means it could potentially be used to pay creditors, even if you receive the money after your case begins.

If the inheritance arises more than 180 days after you filed, it is generally not included in the bankruptcy estate. However, other factors may still apply depending on your situation, making it important to review the details carefully.

Inheritance in Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, non-exempt assets are liquidated to repay creditors. If you inherit money within 180 days of filing, the bankruptcy trustee may have the right to claim some or all of those funds. New Jersey and federal exemption laws may protect a portion of the inheritance, but any non-exempt amount could be distributed to creditors.

If the inheritance occurs after the 180-day period, it usually remains yours and does not affect your discharged debts.

Inheritance in Chapter 13 Bankruptcy

Chapter 13 bankruptcy works differently because it involves a repayment plan lasting three to five years. If you receive an inheritance during your repayment period, even beyond 180 days, the court may require you to report it. In some cases, the inheritance could lead to a modification of your repayment plan, potentially increasing the amount paid to creditors.

The impact depends on the size of the inheritance and your overall financial situation, which is why transparency is critical.

The Importance of Disclosure

Failing to disclose an inheritance during bankruptcy can lead to serious consequences, including dismissal of your case or allegations of bankruptcy fraud. Even if you are unsure whether the inheritance must be reported, it is always safer to disclose it and seek legal guidance on how it should be handled.

How Legal Guidance Can Help

Inheritance issues during bankruptcy can be complex, especially when balancing state and federal rules. At Juan C. Velasco, Esq., we can provide legal assistance to the New Jersey public by helping clients understand their disclosure obligations, exemption options, and how an inheritance may affect their bankruptcy case.