Will I Lose My Inheritance in a Bankruptcy?

Bankruptcy is a challenging financial situation that can impact various aspects of your life, including potential inheritances. The question, “Will I Lose My Inheritance in a Bankruptcy?” often comes up among those considering filing for bankruptcy. This article explores the nuances of bankruptcy law and how it relates to potential inheritances, providing an in-depth analysis to help you understand your options.

Understanding Bankruptcy

Bankruptcy is a legal process that provides relief to individuals or businesses that cannot repay their debts. The bankruptcy process involves liquidating assets to repay creditors, and in some cases, establishing a repayment plan. However, the implications of bankruptcy extend beyond the immediate financial relief, particularly when it comes to inheritance.

Inheritance and Bankruptcy: The Connection

When you file for bankruptcy, your assets get assessed and potentially liquidated to repay your creditors. If you receive an inheritance while you’re bankrupt, it could become part of your bankruptcy estate and be used to settle your debts. The timing of the inheritance plays a critical role in determining whether or not you’ll lose your inheritance in bankruptcy.

The Timing of Inheritance in Bankruptcy

The timing of when you receive an inheritance during bankruptcy is crucial. If you become entitled to an inheritance before filing for bankruptcy, it will be considered part of your assets. If you become entitled to the inheritance after filing but before discharge, it will also be considered part of your bankruptcy estate. However, if you become entitled to the inheritance after your discharge, you get to keep it.

The Role of the Bankruptcy and Insolvency Act

The Bankruptcy and Insolvency Act (BIA) in Canada outlines the laws related to bankruptcy and insolvency. Section 67 (1)(c) of the BIA specifies that any property acquired by or inherited by the bankrupt individual before their discharge becomes part of the bankruptcy estate. This includes any assets that you own as of the date you filed for bankruptcy, as well as any assets that you acquire after filing for bankruptcy and before discharge.

Inheritance Before Bankruptcy

If you’re entitled to an inheritance before bankruptcy, it is crucial to disclose this information when filing for bankruptcy. Hiding potential inheritance is considered an offense under the BIA and could lead to a refusal of your bankruptcy discharge or a conditional discharge order requiring you to meet additional terms.

Inheritance During Bankruptcy

If you become entitled to an inheritance during bankruptcy, you must inform your trustee so that the proceeds can be redistributed to your creditors. While this may seem like a disadvantage, it could potentially help you achieve debt relief sooner. If the inheritance is large enough to cover your debts, you could cancel the bankruptcy and keep a portion of your inheritance. Alternatively, you could switch to a consumer proposal and repay a portion of what you owe, allowing you to eliminate your debts quickly and get a fresh financial start.

Inheritance After Bankruptcy

If you become entitled to an inheritance after your discharge from bankruptcy, you get to keep it. The inheritance is yours, and it is not considered part of the bankruptcy estate.

Legal Cases and Precedents

Several legal cases have explored the intersection of inheritance and bankruptcy. For instance, the Court of Appeal for Ontario recently reviewed a bankruptcy judge’s decision in Richards (Re), 2022 ONCA 216 (CanLII). The court upheld the judge’s decision that an inheritance would impact an estate during bankruptcy.

Protecting Your Inheritance

While it might seem like the odds are stacked against you when it comes to protecting your inheritance during bankruptcy, there are potential strategies available. For instance, setting up a trust that provides a monthly allowance instead of transferring the asset directly can protect the bulk of the inheritance from creditors.

However, it is important to consult with a financial advisor or insolvency professional to understand the best course of action based on your specific circumstances.


Navigating bankruptcy and the potential impact on your inheritance can be complex. It’s essential to fully understand the implications and seek professional advice to make informed decisions. If you find yourself dealing with financial stress and considering bankruptcy, reach out to a licensed insolvency professional. They can guide you through the process and help you understand the potential impact on your inheritance.

Remember, the question, “Will I Lose My Inheritance in a Bankruptcy?” is not one-size-fits-all. The answer depends on your specific situation, the timing of the inheritance, and the laws governing bankruptcy in your location. Seek professional advice to understand your options and make the best decisions for your financial future.

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