Area of Law: Credit, Debt and Bankruptcy
Answer # 0271
What happens if I receive property, assets or an inheritance while I am bankrupt?Region: Ontario Answer # 0271
Property acquired after filing for bankruptcy, and while in bankruptcy
In general, if you acquire money or other types of property, including gifts, an inheritance, or winnings – after the date you file for bankruptcy, and during the bankruptcy process – these assets must be turned over to your Licensed Insolvency Trustee (LIT) to be distributed amongst your creditors. However, when you file for bankruptcy you are allowed to keep some types of property, such as personal items and household goods (up-to an amount set out in provincial legislation). For more information, refer to topic #0266 What property can I keep after I declare bankruptcy?
Property acquired after being discharged from bankruptcy
The final discharge is the last step in a bankruptcy procedure. In most cases, first-time bankrupts will receive an automatic discharge nine months after filing for bankruptcy. Generally, any property you received after you are discharged from bankruptcy is yours to keep. There are special considerations in certain situations, such as with inheritances.
People generally think that if you receive an inheritance after you are discharged from bankruptcy then you are entitled to keep that inheritance. This is not necessarily the case. It is the date the person leaving the inheritance dies that decides what happens to the inheritance. There are three scenarios:
- If a person dies before you file for bankruptcy and leaves you an inheritance, the inheritance will go to your LIT to distribute amongst your creditors. It does not matter how long it takes to liquidate the assets of the deceased, which could be years, whatever you (the beneficiary) is entitled to will go to the eligible creditors.
- If a person dies during your bankruptcy leaving you an inheritance, the inheritance also goes to your LIT for the benefit of your creditors.
- However, if a person dies after you are discharged from bankruptcy, you are entitled to keep any inheritance you are left. Your LIT and creditors have no claim to it.
How to keep an inheritance you know you will receive while bankrupt?
If you are bankrupt and believe you are going to receive an inheritance, you may be able to keep the inheritance by having the bankruptcy annulled.
You may be able to annul the bankruptcy if you:
- File a consumer proposal: If you file a consumer proposal that has payment terms based on you receiving the inheritance, this would annul the bankruptcy.
- Apply to the Court: If you know the inheritance exceeds the value of your debts, you can apply to Court to have the bankruptcy annulled.
- Make an informal proposal to your creditors to repay a portion of the debt from the inheritance. The creditors may agree to take less than the full amount they are owed and write-off the remainder of the debt.
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