What Happens If I Inherit Money While I Am Bankrupt

2014-06-30   minute read

That is a question that we get a lot as Trustees.  Every situation is different but generally speaking, the answer is a three-step process:

  • First, you must notify your Trustee.  The Trustee will be able to help you with the second part;
  • Second, it must be determined if this inheritance forms part of your seizable assets in the bankruptcy or not (unseizable).  To determine the seizability, you will need to look at the last will and testament of the deceased person.  This may differ from province to province. In Québec, some of the general rules are: the will must have a specific clause of unseizability, it should be for a finite period of time, should be registered on the public registry,etc. To be sure, you may need to ask the advice of a lawyer or a notary.
  • Third, if it is unseizable, this means the Trustee does not take it, and you get to keep it.  If it is seizable, then the money or asset is given to the Trustee so that it may be divided amongst your creditors on a pro-rata basis, which means each creditor will receive the same percentage of their debt.

Now what if you receive more money than the total amount that you owe your creditors? In this case, you have some options.  One option is to give the money to your Trustee, as required by the law, and the Trustee will pay off your creditors in full.   Any monies left over after paying all your debts and fees, would be given back to you.  

Another more interesting option is to change or convert your bankruptcy to a consumer proposal.  A consumer proposal is generally a new deal or arrangement that you make with your creditors to pay them a certain amount of money over a certain amount of time. If the creditors agree, then once you pay the terms of the proposal, then your bankruptcy would be annulled or cancelled and would no longer appear on your credit record as a bankruptcy.

The key is always to let your Trustee know what is going on during your bankruptcy.  Your trustee will be able to guide you and explain to you what needs to be done, so that at the end of the day, you will get your discharge and be free of debt.

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