Most debtors expect that when they file for bankruptcy they will lose the majority of their assets.  Other than exempt or secured assets, any investments, recreational vehicles or excess equity in a house must be realized by the Licensed Insolvency Trustee for the general benefit of creditors.

What many debtors don’t realize is that the Trustee also has an obligation to pursue “after-acquired assets” meaning any asset that the bankrupt receives or becomes entitled to from the date of filing bankruptcy to the date of discharge.  This would include an inheritance, entitlement to life insurance proceeds, lottery winning or any major asset that is put in the bankrupt’s name. The bankrupt actually has a duty to advise the Trustee if they receive or become entitled to any assets while they are an undischarged bankrupt.   It is the discharge from bankruptcy (typically 9 months for a first time bankrupt with no surplus income payments) that relieves you of your obligation to the Trustee.

Specifically, with respect to an inheritance, if you are a beneficiary in a will and the individual passes away while you are undischarged, you are obligated to advise the Trustee and your share of the inherited estate will be sent directly to your Trustee.  The date of death and the date of your discharge are the relevant dates, not the date that the funds are actually paid out.  The funds received by your Trustee will be disbursed for Trustee’s fees based on a tariff calculation and dividends to your creditors with interest at 5% per year.  If there are surplus funds remaining, the surplus will be refunded to the debtor.

If you are concerned about the health of a family member and potential inheritance during a bankruptcy, a consumer proposal may be a better option.  Contact a Fresh Start Now Licensed Insolvency Trustee at Taylor Leibow Inc. and we would be happy to review your financial situation and the best solution for you.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)