Inheriting Money After You File Bankruptcy in Florida: The 180-Day Rule

Live in Florida and expecting an inheritance?

Florida has one of the oldest populations in the country, which means Florida probate courts handle a great many estates, and a great many adult children are filing bankruptcy while a parent is in hospice or an estate is still open. The question comes up constantly: if a parent dies after I file, does my inheritance go to my creditors? Often the answer is yes, for a limited window, and the timing rules are less forgiving than people expect.

The rule: 11 U.S.C. § 541(a)(5)

Generally, property you acquire after filing a Chapter 7 case belongs to you, not the bankruptcy estate. Your paycheck the week after filing is yours. Congress carved out three exceptions in 11 U.S.C. § 541(a)(5). Property you acquire, or become entitled to acquire, within 180 days after the filing date becomes property of the estate if it comes to you:

1. By bequest, devise, or inheritance.
2. As a result of a property settlement agreement with a spouse, or an interlocutory or final divorce decree.
3. As a beneficiary of a life insurance policy or a death benefit plan.

The Chapter 7 trustee can then administer that property for your creditors, subject to any exemption you can claim.

When the 180-day clock actually starts in a Florida probate

The phrase "becomes entitled to acquire" does the work here. The date that matters is usually the date of death, not the date the check arrives.

Under Florida law, Fla. Stat. § 732.514, a devise under a will vests at the testator's death unless the will says otherwise. A parent who dies on day 120 after you file has passed you an interest on day 120, even if the personal representative does not distribute anything for another year. Florida estates rarely close quickly. The notice to creditors alone runs for months, and estates with real property, disputes, or tax filings can take much longer. None of that delay moves the date of death.

Two related points:

• Death before filing. If the parent died before you filed, your interest in the estate is already property of the bankruptcy estate under § 541(a)(1), with no 180-day question at all. It must be listed on your schedules even though nothing has been paid.
• Death on day 181 or later. In a Chapter 7 case, an inheritance from a death after the 180-day window generally stays with you.

You must report it: Rule 1007(h)

Federal Rule of Bankruptcy Procedure 1007(h) requires a debtor who acquires or becomes entitled to acquire property described in § 541(a)(5) to file a supplemental schedule within 14 days after learning of it, or within any further time the court allows. If you claim any of it as exempt, the exemption claim goes on that supplemental schedule.

The duty continues even after a Chapter 7 case is closed. A discharge that arrived in month four does not end your obligation to report a death in month five. The trustee can ask the court to reopen a closed case to administer the asset.

Report through your bankruptcy attorney. The Chapter 7 trustee will then evaluate the asset, and the process is described in The Chapter 7 Trustee in Florida.

Exemptions may protect some of it

An inheritance does not automatically go to creditors. The same exemptions that protect your other property apply.

• Inherited retirement accounts. Florida's retirement account exemption, Fla. Stat. § 222.21, by its terms extends to inherited retirement accounts. An inherited IRA can be very different from an inherited bank account.
• Life insurance. Florida's life insurance exemption, Fla. Stat. § 222.13, protects death benefits from the creditors of the person who died. It does not generally shield the proceeds from the beneficiary's own creditors once paid. See Life Insurance and Annuities in Florida Bankruptcy for the distinctions.
• Real property. An inherited house is protected as homestead only if it becomes your residence and otherwise qualifies, and the timing of that change matters.

Everything else, such as cash, brokerage accounts, and non-homestead real estate, is typically available to the trustee unless another exemption applies.

Chapter 13 is different, and usually broader

In Chapter 13, 11 U.S.C. § 1306 generally brings into the estate property you acquire after filing and before the case is closed, dismissed, or converted. A Chapter 13 plan lasts three to five years, so the window for an inheritance to matter is generally the life of the plan, not 180 days.

An inheritance during a Chapter 13 case can lead the trustee or a creditor to seek a modification that increases what unsecured creditors receive. The mechanics are covered in Modifying a Chapter 13 Plan in Florida. How § 1306 and the 180-day rule interact is an area where courts have not been uniform, which is one more reason to disclose and let counsel make the argument.

Divorce property settlements

A property settlement or divorce judgment entered within 180 days after filing falls under the same rule, and a settlement that gives you a share of a house, a retirement account, or a cash equalization payment can become estate property. Coordinating the divorce and bankruptcy calendars is discussed in Bankruptcy and Divorce in Florida: Timing.

Disclaiming the inheritance

Florida allows a beneficiary to disclaim an inheritance under chapter 739 of the Florida Statutes, so that the property passes as if the beneficiary had died first. People sometimes ask whether they can disclaim to keep an inheritance away from the trustee.

This is an area where courts differ. Whether a disclaimer made before filing can be undone as a transfer, and whether a disclaimer made after filing has any effect against the trustee, depends on the timing, the governing law, and the court. A disclaimer is not a decision to make on your own, and it should never be made without telling your bankruptcy attorney first. See Fraudulent Transfers in Florida Bankruptcy for how trustees view property that leaves a debtor's hands.

What happens if you hide it

Concealment is far more expensive than the inheritance. The Bankruptcy Code allows the court to deny a discharge for concealing estate property or making a false oath (11 U.S.C. § 727(a)), and under § 727(d)(2) the court can revoke a discharge already granted if the debtor acquired estate property and knowingly and fraudulently failed to report or deliver it. Revocation brings back every discharged debt. Bankruptcy fraud is also a federal crime under 18 U.S.C. § 152.

Trustees learn about inheritances. Florida probate filings are public, life insurers and plan administrators keep records, and relatives talk.

Frequently asked questions

My father is seriously ill. Should I wait to file? Choosing a filing date is legitimate, and in some cases waiting is sensible. Whether it is right depends on your exposure to lawsuits and garnishment and on what you expect to inherit. Discuss it openly with counsel.

The estate will not pay me for a year. Do I still report it? Yes. The duty is triggered when you become entitled to the property, not when you receive it.

Does Florida tax the inheritance? Florida has no state personal income tax and no state inheritance tax.

If you are deciding whether bankruptcy fits at all, the free Florida means test calculator takes about three minutes and shows whether Chapter 7 is realistic before you pay for a consultation.