If you receive, or become entitled to, an inheritance within 180 days after filing bankruptcy in Anaheim CA, that inheritance may become part of your bankruptcy estate, and the trustee could use it to pay your creditors. This is known as the 180-day rule. What matters is the date your loved one passed away, not the date the money or property actually reaches you. The good news is that with proper disclosure and the right exemptions, you may still be able to protect some or all of what you inherit. Winterbotham Parham Teeple, a PC helps Anaheim residents understand how this rule applies to their situation and what steps to take next.

What Is the 180-Day Rule in Bankruptcy?

When you file bankruptcy, the property you own on the filing date becomes part of your bankruptcy estate. Most property you acquire after that date belongs to you and stays out of the case. However, the Bankruptcy Code makes a few exceptions. Under Section 541(a)(5), certain types of property you become entitled to within 180 days after filing are pulled back into the estate as if you owned them on the day you filed.

Those types of property include:

• Inheritances received through a will or under California’s intestacy laws when there is no will
• Life insurance proceeds or death benefits paid to you as a beneficiary
• Property you receive in a divorce settlement or a final divorce decree

The rule exists to prevent people from timing a bankruptcy filing just before a large windfall they know is coming.

Does the 180-Day Rule Depend on When I Receive the Money?

No. This is one of the most misunderstood parts of the rule. The 180-day clock looks at when you became entitled to the inheritance, which is generally the date of death. If a relative passes away within 180 days after you file, the inheritance can be part of your bankruptcy estate even if probate takes a year or more and the funds arrive long after your case is closed.

On the other hand, if your relative passed away on day 181 or later, the inheritance generally belongs to you, even if your case is still open.

How Does the Rule Work in Chapter 7 vs. Chapter 13?

In a Chapter 7 case, an inheritance that falls within the 180-day window can be collected by the Chapter 7 trustee and distributed to your creditors, unless an exemption protects it. In some situations, the trustee may reopen a closed case to recover inherited property that was not reported. You can learn more about how this chapter works on our Chapter 7 bankruptcy page.

Chapter 13 works differently. Property you acquire during your three to five year repayment plan is generally considered part of your estate. This means an inheritance received at almost any point during your plan, not just in the first 180 days, may need to be reported. The trustee may ask that some or all of it be used to increase payments to your unsecured creditors, depending on your plan and your exemptions.

Can I Protect an Inheritance With California Exemptions?

Possibly. California offers two sets of bankruptcy exemptions, and you must choose one. Depending on which set fits your situation best, a wildcard exemption or other available exemptions may shield part or all of an inherited asset. Whether this works depends on the size of the inheritance, what other property you need to protect, and how your case was originally filed. An experienced bankruptcy attorney can review your exemptions and determine whether amending them is an option.

What Should I Do If I Inherit Property After Filing?

If someone passes away and leaves you money or property during the 180-day window, or during your Chapter 13 plan, take these steps:

1. Contact your bankruptcy attorney right away
2. Do not spend, transfer, or give away the inheritance until you receive legal guidance
3. Allow your attorney to file the required supplemental disclosure with the court
4. Review which exemptions may protect the inherited property

Failing to report an inheritance can have serious consequences, including the loss of your discharge. Being upfront protects your fresh start.

Frequently Asked Questions

Do I have to report an inheritance if my case is already closed?

Yes, if the death occurred within 180 days after your filing date. Your duty to disclose continues even after your case is closed.

What if I refuse or disclaim the inheritance?

Disclaiming an inheritance does not always avoid the rule and may create additional problems. Speak with an attorney before taking this step.

Does the 180-day rule apply to gifts?

Regular gifts are generally not included in the rule. It applies to inheritances, life insurance proceeds, and divorce-related property.

Speak With an Anaheim Bankruptcy Attorney Today

An unexpected inheritance can complicate a bankruptcy case, but it does not have to undo your progress. For over 30 years, Winterbotham Parham Teeple, a PC has helped Southern California families protect what matters most while getting a fresh start. Our Anaheim bankruptcy office offers free consultations to help you understand your rights and options. Call 800.400.9000 today to schedule your appointment.