Some or all of any inheritance you are left while you are bankrupt you are likely to lose. This is the case whether or not the money is actually paid to you during your bankruptcy or afterwards.

Included in this article:

• What happens to an inheritance you get while you are bankrupt?
• What if the money is not paid until after you are discharged?
• How much can the Official Receiver keep?
• Alternative debt solutions if you are likely to get inheritance

Need more advice? Give us a call (0800 077 6180) or complete the form below. Its free and confidential.

What happens to an inheritance you get while bankrupt?

Any inheritance you are left while you are bankrupt forms part of your bankruptcy estate. This means, when you subsequently receive the funds, these must be handed over to the Official Receiver (OR). The money is then used to pay the OR’s costs and your debt.

This rule applies if person who leaves you money passes away during your bankruptcy. It also applies if the person died before you went bankrupt but the funds are not paid until after you have gone bankrupt.

The OR will normally find out about any inheritance your are due because the executor or solicitor dealing with the deceased’s estate will tell them.

If you are paid the money and don’t declare it, you are committing a criminal offence. If the OR finds out later they will certainly demand the funds be returned to them and take further action against you to enforce the payment if necessary.

If you are left an inheritance by someone who dies after you are discharged from your bankruptcy, you will be able to keep 100% of the money.

What if the money is not paid until after you are discharged?

You remain legally obliged to hand over your inheritance if the person leaving you money dies before or during your bankruptcy but you don’t receive any funds until after you are discharged.

This scenario might happen where it takes time for probate to be granted and or to realise the deceased person’s assets. Perhaps a property has to be sold before your share of an inheritance can be paid to you.

The fact that you have already been discharged (and so are no longer bankrupt) does not mean you are allowed to keep the money when it is eventually paid. It remains part of your bankruptcy estate and must still be paid to the OR. This is because the reason why you are getting the windfall happen before or while you were bankrupt.

Where an executor or solicitor is aware you were previously bankrupt, they can contact the Official Receiver to check whether your inheritance does form part of your bankruptcy before releasing any money to you.

How much can the Official Receiver keep?

Where the amount of your inheritance is less than the total debt you owed when you went bankrupt, the Official Receiver will keep all of it. But what happens if you receive more?

You may think that the maximum that the OR can take is the total of your original debt. Unfortunately this is not the case. they can and will take more.

First they are allowed to deduct sufficient funds to pay all of their fees and costs. These are likely to be between £8,000 and £10,000. Then they deduct 100% of the original debt owed so that these funds can be paid to your creditors.

Then, out of any remaining funds, the OR is allowed to charge interest at 8% per year on your total debt from the date you went bankrupt. This interest is also paid to your creditors.

Any funds left over after all of these deductions will be returned to you.

Where all of your inheritance can be taken by the OR, they are not obliged to give any of the funds to you even if you are suffering financial hardship.

Alternative debt solutions if you are likely to get inheritance

No-one knows what the future will hold. However, if you are aware that you are likely to inherit (perhaps from an elderly relative) in the next 12 months, bankruptcy is unlikely to be a sensible debt solution for you.

As discussed above, if the person dies during the year you are bankrupt, you are likely to lose all (or a significant part of) your money.

Given this, in these circumstances, a better option is likely to be a solution which buys you time. You should therefore consider a debt management plan (DMP). This will allow you to reduce your monthly debt payments to an affordable amount, but it is also a flexible agreement.

If you are in a DMP, as and when you receive your inheritance, you can keep it all. You are not forced to use any of it to pay your debt if you don’t want to.

An IVA is unlikely to be a sensible option. As with bankruptcy, if you receive inheritance during an IVA, you will have no choice but to pay it into the Arrangement.

Thinking about going bankrupt? For help and assistance give us a call (0800 077 6180) or complete the form below. The advice is free and confidential.