Are Inherited Assets In Texas Safe From Bankruptcy?

Quick Recap:

Inherited assets in Texas are not automatically safe from bankruptcy. If you inherit money or property within 180 days of filing, it becomes part of the bankruptcy estate. Chapter 13 offers more flexibility for keeping inherited property, while Chapter 7 may involve liquidation. The key is timing, exemptions, and working closely with an attorney to understand how inheritance will affect your case.

Inheriting money or property can feel like a blessing, but if you’re filing for bankruptcy in Austin, Texas, those assets may complicate your case more than you expect.

Whether an inheritance is safe depends on timing, exemptions, and the type of bankruptcy you file. Understanding how the law treats inherited assets can help you protect what matters most.

What Counts As Inherited Assets In Bankruptcy?

Not all inheritances look the same. In bankruptcy, anything you receive as a result of someone’s death may count as part of your estate. Here are the most common examples.

Inheritance doesn’t automatically mean protection. Whether you keep an inherited asset depends on whether it qualifies for an exemption. For example, cash is difficult to shield, but a primary home in Texas is often safe under the state’s homestead laws.

Even if you haven’t received the property yet, if someone passes away within 180 days of your bankruptcy filing, the asset is considered part of your bankruptcy estate. This rule applies in both Chapter 7 and Chapter 13 cases.

How The 180-Day Rule Impacts Inherited Assets

One of the most important factors in bankruptcy and inheritance is the 180-day rule. This federal law can determine whether an inheritance stays with you or becomes available to creditors.

What The 180-Day Rule Says

Under the Bankruptcy Code, if you become entitled to an inheritance within 180 days of filing, those assets are considered part of your bankruptcy estate.

It doesn’t matter if you actually receive the money or property within that timeframe, what matters is when the relative passed away and you became legally entitled to it.

How It Works In Chapter 7

In Chapter 7, inherited assets within the 180-day window are vulnerable. The trustee can claim cash, real estate, or other property unless it qualifies for a Texas exemption.

For example, cash inheritances are rarely protected, but a home could be shielded under the state’s generous homestead exemption.

How It Works In Chapter 13

In Chapter 13, the rules are broader. Even if the inheritance comes after 180 days, the trustee may require it to be factored into your repayment plan. This means you may need to use part of the inheritance to increase plan payments.

The 180-day rule often surprises people. Many assume that because bankruptcy is already filed, new assets won’t be touched. In reality, this rule ensures creditors still benefit from unexpected financial windfalls.

Knowing this timeline is critical if you expect or recently received an inheritance. It helps you and your attorney decide whether to file now or wait until after the 180-day period has passed.

Exemptions That May Protect Inherited Assets In Texas

Even if inherited assets become part of your bankruptcy estate, Texas law provides exemptions that may shield certain types of property. These exemptions are designed to ensure you can maintain basic stability.

Homestead Exemption

Texas has one of the strongest homestead exemptions in the country. If you inherit a house and make it your primary residence, the full value may be exempt from creditors, regardless of how much equity it holds.

This protection does not apply if the property remains a second home or investment property.

Vehicle Exemption

If you inherit a car or truck, Texas allows one exempt vehicle per licensed household member. This means an inherited vehicle could be fully protected, as long as it fits within the exemption.

Personal Property Exemption

Texas law protects up to $50,000 in personal property for individuals, or $100,000 for families. This includes inherited items like furniture, clothing, jewelry, or household goods. High-value collectibles, however, may not be fully covered.

Life Insurance & Retirement Benefits

If you inherit life insurance proceeds as a spouse, child, or dependent, those funds may be exempt. Likewise, certain inherited retirement accounts may retain exemption status, depending on how they’re structured.

Exemptions can make the difference between keeping an inheritance and losing it to creditors. They ensure bankruptcy doesn’t leave you without essentials, while still allowing creditors to access non-essential assets.

For many in Texas, these exemptions are powerful tools. But applying them correctly requires strategy and careful planning with your attorney, especially if your inheritance includes multiple types of assets.

Inherited Assets In Chapter 7 Vs. Chapter 13

The way inherited assets are treated in bankruptcy depends on which chapter you file. Chapter 7 and Chapter 13 have very different rules about how much you can keep and what must go to creditors.

In Chapter 7, inherited assets are at higher risk, since non-exempt property can be sold by the trustee. Chapter 13 allows you to keep more, but you may need to repay creditors with a portion of the inheritance.

Knowing how each chapter treats inheritance is key when deciding which type of bankruptcy best fits your goals. For Texans expecting an inheritance, Chapter 13 often provides greater control, though it comes with a longer commitment.

Steps To Take If You Expect An Inheritance

If you believe you’ll inherit money or property soon, timing and planning become critical before filing for bankruptcy. Here are some steps to protect yourself.

Consult An Attorney First

An Austin bankruptcy attorney can help you evaluate whether to file now or wait. Because of the 180-day rule, filing too soon could put your inheritance at risk.

Review Exemptions

Understand which parts of your inheritance may be protected under Texas exemptions. For example, a home you plan to live in may be safe, while a cash inheritance may not.

Consider Chapter 13 For Flexibility

If keeping the inheritance is important, Chapter 13 may be the better option. While it could increase your repayment plan, it usually allows you to hold on to the asset itself.

Be Transparent

Failing to disclose an expected inheritance can lead to dismissal of your case. Trustees expect honesty, and hiding assets could result in legal consequences.

Taking these steps helps you make informed choices. With the right preparation, you can file for bankruptcy while protecting as much of your inheritance as possible.

Building Security After Bankruptcy & Inheritance

Facing bankruptcy while receiving or expecting an inheritance can feel overwhelming. The rules are complex, and the timing of your filing may determine what you keep and what you lose.

With careful planning, many Texans successfully protect inherited assets while still gaining the relief bankruptcy provides. Exemptions and chapter choice both play an important role in shaping your outcome.

If you’re unsure how inheritance may affect your case, professional guidance can give you clarity. A free consultation helps you understand your options and move forward with confidence.