Bankrupt individuals receiving inheritances

"When there's a Will... I don't want to be in it, at least for three years!"

February 11, 2019

Most people know that upon an individual being made bankrupt, their ‘divisible property’ is realised for the benefit of the creditors of their estate.

What some people do not know, however, is that an inheritance received during the term of the bankruptcy can be claimed by the bankrupt individual’s Trustee to go towards his or her debts.

When we meet with individuals in financial distress, we make sure to address this point, particularly those people with elderly parents who may desire to leave their assets to their adult children.

Case study

Bill decides that bankruptcy is unavoidable and decides to lodge his Debtors’ Petition in bankruptcy. Despite being advised of the implications of receiving an inheritance from his elderly mother during his bankruptcy, Bill did not make arrangements to be written out of his mother’s Will.

Approximately 18 months into his bankruptcy, Bill’s mother sadly passes away and Bill was left a share of a residential property worth over $100K.

Bill’s Trustee in Bankruptcy is duty bound to claim Bill’s share in the property for the benefit of his creditors.  Darn.

We handled a case not too dissimilar to the scenario described above and in our case, the bankrupt was able to successfully propose an ‘In Bankruptcy Composition’, in which the bankrupt’s creditors, on compassionate grounds, accepted less than 100 cents in the dollar as full and final settlement of their claims. The result of this composition was that the bankruptcy was annulled – in other words cancelled as if it did not happen.

The message here is for individuals in financial distress to look beyond their own worldly possessions when considering the question, ‘what do I have to lose?’, and the option of entering into bankruptcy. Remaining in a Will during bankruptcy can be costly.

About the author

Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the team and looks after the operations of the practice.

If you have any queries about bankruptcy, or any other personal insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to gquin@hlbinsol.com.au.

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