Inheritance, Lottery Winnings, and Other Windfalls in Bankruptcy: What You Must Know

If you are considering bankruptcy — or already in a bankruptcy case — and you may receive an inheritance, lottery winnings, lawsuit settlement, or other unexpected money, timing and disclosure are critical.

Failing to understand how windfalls are treated can:

• Cost you the money

• Jeopardize your discharge

• Lead to dismissal or allegations of fraud

This page explains how windfalls are treated in bankruptcy, what must be disclosed, and how timing affects your rights.

---

The Big Rule: Disclosure Is Mandatory

In bankruptcy, you must disclose any inheritance or windfall that:

• You have already received, or

• You become entitled to during the case

This includes money you have not yet physically received but are legally entitled to.

👉 Hiding or failing to disclose is one of the fastest ways to lose a bankruptcy case.

---

Inheritances in Bankruptcy

Inheritances Received Before Filing Bankruptcy

If you receive an inheritance before filing:

• It is usually considered an asset

• It must be disclosed

• Some or all of it may be available to creditors, depending on exemptions

Timing matters greatly.

---

Inheritances Received After Filing Bankruptcy (The 180-Day Rule)

Federal bankruptcy law includes a strict 180-day rule.

If you become entitled to an inheritance:

• Within 180 days after filing bankruptcy

• Even if the money is received later

It is treated as property of the bankruptcy estate.

This applies even if:

• You didn’t expect the inheritance

• The probate process isn’t complete

• You haven’t received the funds yet

---

After 180 Days

If you become entitled to an inheritance more than 180 days after filing:

• It is generally not part of the bankruptcy estate

• It may not need to be turned over

⚠️ This timing rule is extremely important.

---

Lottery Winnings in Bankruptcy

Lottery Winnings Received Before Filing

If you win the lottery before filing:

• The winnings are an asset

• They must be disclosed

• Large winnings may make bankruptcy inappropriate or require repayment

---

Lottery Winnings Received After Filing

Lottery winnings are treated differently than inheritances.

• If the ticket was purchased before filing, winnings are usually part of the estate

• If the ticket was purchased after filing, treatment depends on:

  • Chapter type

  • Timing

  • Trustee interpretation

In Chapter 13, most windfalls must be paid into the plan, regardless of timing.

---

Lawsuit Settlements, Bonuses, and Other Windfalls

Other common windfalls include:

• Personal injury settlements

• Employment settlements

• Work bonuses or commissions

• Insurance payouts

Key Rule

If the right to receive the money existed before filing, it is usually part of the estate — even if paid later.

---

Chapter 7 vs Chapter 13: Big Differences

Chapter 7

• Assets at filing + certain post-filing windfalls are reviewed

• 180-day inheritance rule applies

• Non-exempt windfalls may be taken by the trustee

• Case can be reopened if windfalls are discovered later

---

Chapter 13

Chapter 13 is much stricter.

• Windfalls during the plan period are usually:

  • Required to be disclosed

  • Paid into the plan

• Trustees often require:

  • Plan modifications

  • Increased payments

• Lottery winnings and inheritances almost always affect the plan

---

Common Dangerous Myths

“If I don’t touch the money, it doesn’t count.”
False. Entitlement matters, not receipt.

“It’s after filing, so it’s mine.”
Not always — especially within 180 days.

“Small amounts don’t matter.”
All amounts must be disclosed.

“The trustee won’t find out.”
Trustees routinely review probate records, tax returns, and financial disclosures.

---

What Happens If You Don’t Disclose?

Failure to disclose can lead to:

• Loss of discharge

• Case dismissal

• Repayment demands

• Accusations of bankruptcy fraud

Even honest mistakes can have serious consequences.

---

Planning Matters — Timing Can Change Everything

In some cases:

• Waiting to file bankruptcy may protect an inheritance

• Filing sooner may be disastrous

• Chapter choice (7 vs 13) may change the outcome

There is no safe guess in windfall situations.

---

What You Should Do If a Windfall Is Possible

You should speak with a lawyer before filing if:

• A relative is seriously ill

• You expect probate proceedings

• You have a pending lawsuit

• You anticipate bonuses or settlements

And immediately if:

• You are already in bankruptcy and something changes

---

Talk to a Lawyer Before Filing or Spending Any Windfall

Windfalls and bankruptcy are a dangerous combination without proper guidance.

Ginsburg Law Group helps clients:

• Plan bankruptcy timing strategically

• Avoid loss of inheritances or winnings

• Comply fully with disclosure requirements

• Protect their discharge and future

 

---

📞 Call us today for a free, confidential bankruptcy consultation – 855-978-6564 or email us at bankruptcy@ginsburglawgroup.com.

Contact our Bankruptcy Team: bankruptcy@ginsburglawgroup.com

We work with most major legal services and legal insurance plans.  Some cover your legal fees for bankruptcy services.  Give us a call today to see if your bankruptcy is covered!

BANKRUPTCY TEAM

AMY GINSBURG – aginsburg@ginsburglawgroup.com

GRACIE KLEIN – gklein@ginsburglawgroup.com

NICOLE LOMBARDI – nlombardi@ginsburglawgroup.com