An inheritance can feel like a lifeline during financial struggles, but bankruptcy may change how that gift is handled.
In Texas, whether inherited money or property is protected depends on both timing and the type of bankruptcy filed. Below are some crucial points to remember.
The 180-day inheritance rule
In both Chapter 7 and Chapter 13 bankruptcy, inheritances received within 180 days of filing can be considered part of the bankruptcy estate. This means that if you inherit money, property or other assets during this period, it may be used to repay creditors. Inheritances received after the 180-day window are generally not included, but timing is critical.
Chapter 7 vs. Chapter 13
Chapter 7 bankruptcy usually involves the liquidation of non-exempt assets. If an inheritance is received within the 180 days, it can be claimed by the trustee unless it qualifies for an exemption under Texas law. In Chapter 13, inheritances can increase the amount you are required to repay under your repayment plan, even if the inheritance comes in after the case begins. Courts often view inheritances as additional disposable income that should go toward creditors.
Exemptions under Texas law
Texas provides generous exemptions that may protect certain inherited property. For example, homestead property and some personal property may be exempt from liquidation. However, cash inheritances, investment accounts or non-exempt real estate are more likely to be available to creditors if received within the relevant timeframe.
Whether an inheritance is at risk depends largely on when it is received and whether it qualifies for protection under Texas exemption laws. Understanding the 180-day rule and how exemptions apply can make a significant difference in the outcome of a bankruptcy case.