How is an Inheritance Treated in a Bankruptcy?
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How is an Inheritance Treated in a Bankruptcy? Your province or territory sets the assets that can be retained in a bankruptcy. An inheritance is not an asset that can be retained.
An inheritance is an asset that you will not be able to keep so it is important you consider your options if you are expecting an inheritance to be triggered.
If an inheritance is triggered prior to or during a bankruptcy it is an asset that goes to the trustee for the benefit of the creditors.
How is an Inheritance Treated in a Bankruptcy? For example, if your uncle dies prior to you filing bankruptcy and leaves you an inheritance, then that inheritance belongs to the trustee for the benefit of the creditors.
Another example is if he dies during your bankruptcy then the inheritance also goes to the trustee for the benefit of the creditors.
If your uncle dies after you are discharged from bankruptcy and leaves you an inheritance the trustee has no claim on the inheritance and it goes to you.
How is an Inheritance treated in a Bankruptcy? Some people think that if you receive the inheritance after your discharge then it is yours to keep.
That is not the case. It is the triggering event (The date the person dies) that decides who receives the inheritance.
How is an Inheritance treated in a Bankruptcy? Some people think that filing a consumer proposal will protect the inheritance from going to the trustee. They would be wrong! A person has to be honest and forthright in dealing with their trustee.
This means he has to divulge to the trustee whether or not he expects to receive an inheritance. The information form a person is required to fill out asks the following question and requires you to swear the information provided is true:
Are you a beneficiary of a will or will you receive an inheritance?
I HEREBY CERTIFY THAT THE INFORMATION CONTAINED IN THIS APPLICATION AND ATTACHED INVENTORY SHEET IS A TRUE, CORRECT AND COMPLETE STATEMENT THAT FULLY DISCLOSES THE STATE OF MY ASSETS AND LIABILITIES.
When the bankruptcy papers are signed the debtor also swears an oath that the information provided is true.
It is a serious offense to give false information to your trustee and may result in fraud charges being laid against you.
So, is there anything a person can do to mitigate his bankruptcy if he expects to receive an inheritance?
How is an Inheritance treated in a Bankruptcy? Here is another example. Our firm had a person in bankruptcy come into a large inheritance, where the creditors would be paid off in full. We suggested he file a consumer proposal. The consumer proposal was accepted by the creditors. This meant that the creditors would still get paid in full but the debtor would benefit by not having a bankruptcy on his record.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.