Although it is uncommon, occasionally an individual inherits property right before or right after he files bankruptcy, and the question arises whether the inheritance is subject to creditor claims. As a bankruptcy lawyer I usually have to deliver the unappreciated news in these situations that the answer is yes.
In Illinois an individual filing bankruptcy has a $4,000.00 wildcard exemption that can be applied to inheritances, but the rest is usually subject to creditor claims. If the money is inherited before bankruptcy the trustee may take the remaining balance, and if the inheritance was spent or given away before the filing, you can expect the trustee to scrutinize, if the money was disposed of improperly. If someone inherits property within 180 days of filing the bankruptcy, it is also subject to creditor claims.
Keep in mind that the crucial date is when the decedent dies. If the death is within 180 days of the bankruptcy filing, the inheritance will be subject to creditor claims. It does not matter that the probate of the estate does not begin until after the discharge or whether it takes several years to distribute the funds to the debtor.
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