A reader has asked if my recent article on redundancy payments and bankruptcy also applies to inheriting money or assets when you are bankrupt. The answer is “Yes”, but there are a few extra points to consider.
The date of death is the key date
You become entitled to an inheritance as soon as the person has died, so it legally forms one of your assets from this point. There are three cases depending on when the date of death is in relation to your bankrupty :
- the date of death is before you went bankrupt Here your inheritance is an asset that you owned when you went bankrupt and it therefore belongs to the OR.
- the date of death is after bankruptcy but before discharge Here the money you inherit is an “after-acquired asset”. You should to notify the OR about your inheritance and the OR will claim it.
- the date of death is after discharge In this case the money is all yours. The Official Receiver can’t claim any of it and you do not need to notify him about it, even if you have a BRO or a BRU.
It can take a long while to sort out an estate and distribute the money, especially if a house has to be sold. If the money is being divided between you and some other people, you may not know for a year or even two how much it will actually be. But this doesn’t affect the fact that it is date of death that matters. So for example, there is no point in suggesting to your brother who is the executor that he ‘goes slow’ so that you get discharged before he distributes the money.
nb I have simplified what happens legally in this description, concentrating on whether you will eventually get the legacy. If you would like to find out the details, see this Law Society Practice Note which provides explanations about “the thing in action” (that is an actual legal term!) and what the beneficiary, executors and trustee in bankruptcy are obliged to do.
Is there any way to avoid the OR taking my inheritance?
Normally if you inherit money or assets and you would rather it went to someone else, you can use a Deed of Variation to arrange this. But you can’t use this to avoid the OR getting the money. You can only sign the Deed of Variation if you are due to get the money, but your bankruptcy means that effectively the money isn’t yours so you can’t pass it on to anyone else.
If you want to ensure the OR won’t get the money, the only way is to suggest to the person leaving the money that they change their will to leave it to someone else, for example to your children, or a sibling. More complicated possibilities involving trusts could be set up, but these can be expensive. If there is a lot of money involved, the person should to talk to a solicitor who has experience in these matters.
What happens to my IPA?
If the person has died after your discharge, so you do get the inheritance, if you then invest it so it produces income, that income should be declared to the OR. Your IPA may increase because of this extra income. But the IPA won’t be increased just because you now have money in the bank. If you didn’t have an IPA set because your surplus income was too low, this can’t be changed because an IPA can’t applied after your discharge.
Can I cancel my bankruptcy?
Yes if your inheritance is large enough. If you are inheriting a lot of money then your bankruptcy can be annulled.
To do this, you have to pay not just the amount of your debts that went into your bankruptcy, but also the costs of the Official Receiver, Trustee etc that have resulted. These costs can be very high, often well over £10,000.
I would suggest you should make sure your own financial future is extremely secure before thinking of doing this, so first sort out your future housing, make sure your pension arrangements are good etc.
How does discharge from bankruptcy work?
A checklist for going bankrupt
Bankruptcy – the big questions
Michael Orr says
Hi,
Can the testator specify that a beneficiary can only inherit if they are not bankrupt, but if they are, their inheritance is to pass into some kind of ‘protected’ account until they are discharged?
Sara (Debt Camel) says
So far as I know (and you would need to talk to a solicitor who specialises in Wills) you can word a Will to say that if someone is bankrupt then their share should go to another party. Which could be some form of legal trust. But I doubt it would be possible for the trust to be set up to return the money to the person when they are discharged from bankruptcy.
Michael Orr says
Thank you for the very swift reply!
MO
Jane says
I have a similar question. I am verging on bankruptcy and am due to inherit some money. I feel that morally I owe some money to my son since over the years I have spent far more on my daughter, due to issues which she has, than I have spent on him. This, to me, is the most important of my debts. The remaining money would pay off a decent chunk of my debts, but probably not enough to reduce monthly repayments to a level which I could afford each month without borrowing more. My question is, would I be able to just give the solicitor my son’s bank details, get it all paid to him to look after, and get rid of the debts via bankruptcy. I have read that banks don’t match up bank details to names but not sure if this is true? I know this is probably legally and morally wrong, but to be honest I don’t much care. I’d just like to know if it is possible, and whether it could potentially get my son into trouble. Alternatively, I wonder if the lenders would take the money, which would be maybe two thirds of what I owe, as a settlement if they then closed the accounts. Thank you.
Sara (Debt Camel) says
Have you already defaulted on the accounts? How much do you owe overall, how much are you inheriting and how much do you want to give your son?
George M says
Please can you advise? I am currently bankrupt with 4 months remaining until discharge, however, the OR ordered a BRU on me, which I accepted and will end March 2024. I understand any inheritance I might receive after the bankruptcy itself ends (July 2020) does not need to be declared, so long as the date of death is after the bankruptcy discharge date. 1) Do I need to advise the OR of any small amounts, ie. cash gifts, whilst I am still under the BRU. 2) Can I travel abroad for a period of 4-6 weeks without needing to tell the OR (NB: I reside and filed for bankruptcy in England). 3) Is the OR likely to review my bank account activity at certain times during the BRU. 4) Can I open an alternative cash account with another bank without having to inform the OR (I realise I would need to inform the back I am bankrupt when opening the account) and will the OR have access to this. Thank you for taking the time to read through my queries.
Sara (Debt Camel) says
Are you paying an IPA?
George M says
Hi,
No, I’m not paying an IPA due to having UC/PIP benefits as my only source of income. Do you happen to know if I can negotiate the length of the BRU with the OR once I have signed and accepted it. It seems quite severe for the amount.
Sara (Debt Camel) says
The simple way to get answers to your questions that you know are right for your case is to ask your OR. You should have disputed the length of the BRU before agreeing to it, but why do you care how long it is?
George says
My main concern is whether my spending history will be reviewed whilst I am still under BRU and could this go against me, ie. taking holidays, spending on non-essential items, using my debit card abroad when the money could/should have been paid to my creditors. Obviously I don’t want to run the risk of the BRU being extended further. I have NOT been asked to enter into an IPA, so does that mean I can do what I like with any excess cash I have left over at the end of the month?
Sara (Debt Camel) says
I suggest you talk to your OR’s office. That is the best way to have your mind set at rest.
kel says
my bankruptcy ends tomorrow! but my inheritence is looming (not amounts stated as of yet so could be a few weeks) but the bankruptcy still want the money i dont think thats fair as it ends tomorrow
Sara (Debt Camel) says
It is the date of death that matters – if this is before your discharged, the money has to go to the official Receiver. It doesn’t matter when the money is actually distributed.
kel says
all of it? even if its more than i owe?
Sara (Debt Camel) says
You will have to pay off what you owed plus the OR’s costs, which can be high. Have you talked to the OR about this? If not you need to do this.
kel says
what are ORS costs?
Sara (Debt Camel) says
The Official Receiver’s costs.
Stewart Pearson says
Hi in 20007 I was made bankrupt but up to this date I was never discharged 13 year’s on, this was because of a disagreement regards paperwork. In 2013 my mum died and I was left over £7000 but I never received any of the money as the probate office informed the official receiver’s that I was left this money,is this right they can do this
Many thanks
Sara (Debt Camel) says
It was very foolish not to resolve that paperwork disagreement. If you want someone to look at the details of your case, talk to National Debtline on 0808 808 4000
stewart pearson says
It was not foolish at all because I gave all the paper work requested then never heard any more from them until the death of my mother then they took the money
Sara (Debt Camel) says
Then talk to National Debtline if you feel it was the OR’s fault and that your bankruptcy should have been discharged before your mum died . But you have left it a very long while to challenge this.
Billy says
My dad recently passed away and left me his half of the house. My mum still owns half and lives in the property but I am bankrupt and not discharged until August. Can my mum lose the house because of me!
Sara (Debt Camel) says
Potentially, yes. I suppose your mum may be able to challenge the Will. Or get a mortgage and buy back your half of the house.
john says
my grandmother died leaving her estate to be divided between her 4 children. My father was already dead do his 1/4 of the estate was to be shared between my brother and I. The estate was not to be divided until her oldest son was still alive and living in the house. He has just died so the estate is to be divided.
Unfortunately I filed for bankruptcy some years ago. After my Grandmother died but long before her oldest son died. Is my share still liable to be taken by the OR?
Please remove surname from my comment above
Sara (Debt Camel) says
So far as I know, the right to inherit that share when the eldest son died would have become the property of the OR when you went bankrupt.
john says
OK thank you
David says
Hi. My Dad died in April, a month after I declared bankruptcy. In his Will he left half of his share of the family home to my Mum and the remaining half to be shared equally with me and my two brothers. This is a mistake by the solicitors who drafted the Will and is presently the subject of potential professional negligence case as my Dad said for years that everything went to Mum.
My parents were 50/50 TIC (Tenants in Common) and the house is in trust which states clearly on the Land Registry that nothing can be done financially with the house without express permission of a court order.
My parents have mirror Wills.
So i have a one third share of a quarter of their house. I have no control over the house. I am not liable for repairs. I cannot sell my tiny part. I cannot do equity release. In short I am not the owner/recipient of anything of substance that is valuable. However, I will be when my Mum passes…she’s 83 and has live in her house for 58 years.
Bankruptcy law states that the OR can claim anything of vested interest in the bankrupt. According to the Law the OR can’t claim my tiny part of on paper “ownership”. So why can they claim ownership of the whole house?
Sara (Debt Camel) says
I can’t comment on your case about the Will.
According to the Law the OR can’t claim my tiny part of on paper “ownership”.
I don’t know what Law you are referring to here.
So why can they claim ownership of the whole house?
The OR certainly can’t do that.
David says
Hi Sara.
I’ve just received an email from the OR.
Good news…
“Thank you for supplying the information.
Based on the information provided it does appear that you do not have an interest as it appears that all the inheritance falls to your Mum. You would only have an interest if your Mum passes away before you are discharged.
If there any changes before your discharge, you are required to inform the Official Receiver.
Kind regards”
The information I supplied was my Dad’s Will and the Title Deeds to their house.
I suspect this is down to the Trust the house is in and their mirror Wills. I might ask for an explanation but from all I’ve read I suspect that where mirror Wills are concerned the first to die’s Will is actually completely ineffectual.
I’m also sure it might change should my mum not have use for the house due to moving into permanent care home. This might change the situation if the house is sold so the first to die’s Will would be taken into account.
Thanks for you efforts and help.
Sara (Debt Camel) says
A good result for you.
So far as I know, this has nothing to do “mirror wills”.
John says
Hi, I have debts around 15,000 which I have absolutely no way of paying currently so I am considering bankruptcy. However a couple of years ago my grandad passed away but has left 50,000 to me but it is in the conditions in the will that I cannot receive the money until I am 30 (about 4 years away) so will be placed in a trust fund until then.
If I was to declare bankruptcy now would I have to pay it to the OR once I receive it?
Sara (Debt Camel) says
From what you have said it seems likely that the Official Receiver would claim the money from your inheritance when it is paid to you – this is currently an asset that you posses, even if you cannot Access if a the moment and this asset would be come the property of the Official Receiver when you go bankrupt.
The OR would claim not just the 15k of your debts but their own fees, which can be high. Sometimes 10k or more.
Obviously am saying that without having seen the wording of the Will. And I am not a solicitor. You could double check this with National Debtline on 0808 808 4000 or you could consult a solicitor.
One option for you to consider is going for a debt management plan for the next 4 years. Or if you cant afford to make any significant payments, offer just a token £1 a month to your debts. See https://debtcamel.co.uk/token-payment-debt/. Then in 4 years time when you get the money, look at making full & final settlement offers to the debts – at that point you may be able to settle them for a lot less than their full value. See https://debtcamel.co.uk/debt-options/less-common/full-final/.
National Debtline can help you look at your situation in detail and choose between these options.
Tony says
I would say that whatever you do, do NOT tell your debt holders ANYTHING about the money you are coming into. That would only strengthen their resolve to obtain full settlement. Debt Camel are spot on with what the OR would claim, including their charges (been there, seen that, got the T shirt too). If the debts arise from unsecured loans/credit cards, they are unlikely to pursue you through the courts (although they could do) as they risk the danger of being told that the debt is unsecured and they therefore must accept the situation and wipe the debt clean, but it would remain on your credit report for 6 years. I agree with the advice given, insofar as asking for a freeze on the interest due to hardship and offering to pay a token amount per month. They will undoubtedly during this period, offer a much lower settlement figure and you could see a settlement upto 80% lower than the current amount (something that I obtained for my daughter and family rallied round to clear it.) If it’s the tax/vat man you owe money to, do your level best to meet their demands, as they will NOT reduce the mount you owe and WILL pursue it through to bankruptcy if agreement cannot be reached.
Hazel says
My mum inherited £90,000 in March 2 weeks before her discharge, the money has been taken by the OR which I know if all correct. However, the OR took the money on the 17th June. Since then they have placed an add for creditors to claim their money back. The end date for this was the 9th September. They have since said that the distribution payments to creditors has been put through on the 30th September. Once the payments have been sent out the distributions process will be completed. However, they are obligated to keep the money for 4 – 8 weeks to ensure no further evidence or queries arise. They have then said after this time they will right to ask for photo identification, which she does not have as she doesn’t have a driving licence or passport. They have said they will not release the finds until this is received?
My questions are:
Is this correct?
How is it decided if it is 4 or 8 weeks?
Is there a maximum time they have to sort this all out?
If any of this is incorrect is there somewhere we can go to make a complaint?
What does she do as she doesn’t have any photo ID?
Sara (Debt Camel) says
It doesn’t sound wrong. Does 4 or 8 weeks really make a difference?
I suggest she asks them what alternative id she can provide as she doesn’t have photo id.
Hazel says
It does for her, she lived with her parents as there career and when they died the house was sold and she has had to move in with my sister. She has a 1 bed place and at present she has spent the last 3 month sleeping on a sofa and at 65 with arthritis it isn’t great. It is seriously starting to affect her health and she can’t even start to look for anywhere to live as she has no idea how much money will be left. the different between a month or 2 months possibly longer as we found out today is huge.
Sara (Debt Camel) says
Then I suggest she replies saying how her health is being affected as she is sleeping on a sofa so she would be grateful if this can be managed as speedily as possible.
Peter says
I need to find out if my inheritance is able to be paid to me by late mothers estate solicitors.
My mother passed away just over a year ago and probate has been finalised.
I was discharged from bankruptcy on the 2nd of May 2018 and my IPA was completed on the 1st of May 2020.
The estates solicitor has received my proof of discharge however she requires proof from the Insolvency Agency that I am entitled to the monies.
I have no student debt, outstanding child care fees and never obtained money by fraud…
Please tell me i can have my inheritance .
Sara (Debt Camel) says
Your OR’s office should confirm to the solicitor dealing with the estate that they have no interest in the money.
Mark says
Hi,
My father sadly died leaving “his half” of the house in trust until such time as my mother dies. At that point, which I hope might be decades away, the beneficiaries will inherit the half of the house that has been held in trust. One of those beneficiaries is considering going bankrupt soon but I am concerned that the OR might claim the inheritance and “twenty years” down the line the other beneficiaries will get a share of the house but this one will have to pay the OR at that point. [debts share of house]
Sara (Debt Camel) says
Well it’s his problem not yours… but yes, it is possible this may happen.
Mark says
Thanks. Very grateful. I’d previously tried the same question with StepChange and CAB who didn’t feel able to offer a firm opinion and also Gov Insolvency Service who replied with a poor answer to a different question then nothing and (informally) the solicitors who wrote the will who just stayed on the fence. It’s great to have your reply and, having now read every article and comment I could find on Debt Camel, I feel I’ve got a good handle on the situation and what to do. This site is a wonderful resource. You are right that ultimately its not my problem, but if nothing else its an interesting challenge to help him unpick a massive debt problem. I’m certainly learning a lot.
Sara (Debt Camel) says
I said it MAY happen. To be sure you would need to get the Will looked at by a lawyer who specialises in insolvency. I can recommend one and my guess is this would be an easy answer for them to give ie it shouldn’t cost a fortune. You may consider this is worth it.
David W B says
Hi. Sorry for your loss. I might be able to help soon as I’m in a similar situation. I’ve asked the OR what they will be doing.
My situation…I declared bankruptcy on 6th March. My Dad passed on 9th April. My parents had mirror Wills, were 50/50 Tenents in Common and the property is in trust. So my Mum is now automatically 100% legal owner. I was bequeathed 16.6% of his half. The OR can’t take or force a sale of her property. Wills bequeath beneficial (financial) interest and not legal ownership. As I understand it thus far, my Dad’s beneficial interest is only effective should my Mum sell or not have use for the house as this is when there’s financial benefit (after aquired property). The OR is also forbidden from touching property in trust. My beneficial interest will not be realised during my bankruptcy so effectively I haven’t received any after aquired property. Because my Mum is 100% legal owner she has changed her Will eliminating me leaving what would be a third for me to my children. Essentially where mirror Wills are concerned the first to die Will is only effective while the surviving spouse/partner is alive. The crux of the issue is…can my Mum be forced to write her Will a certain way or is she legally forced to only bequeath 83.4% of a property she is 100% legal owner of.
Anyway, hope this might of helped. My reply from the OR is imminent so I will let you know when I find out more.
Sara (Debt Camel) says
My beneficial interest will not be realised during my bankruptcy so effectively I haven’t received any after aquired property.
I don’t think that is correct.
I would be interested to know what the OR says.
In the case of Mark’s brother, this would not be after acquired property as the death would be before he went bankrupt.
Dave B says
As per previous comment above.
I don’t actually have any after acquired property even though I’m in my Dad’s Will.
Emma says
Hi, please help; on behalf of a friend
1) parents signed over 1/4 of the house to child no 1 (child no 1 didnt know this till recently) (parents still living in property)
2) child number 1 went bankrupt without parents knowing 3 mths ago.
Will the parents lose the house??
Please remove name from post. Thank you
Sara (Debt Camel) says
you mean the parents didn’t tell child 1 they had done this so he went bankrupt not knowing?
are there other children who also own shares in the house?
Dave says
What’s the set up with the parents house? I.e. are they Tennant’s in common? Have they actually put child 1 on the title deeds?
The official receiver can’t take someone else’s home away from them. But could insist on money being raised. Just depends on the amount of bankruptcy compared to the value of the quarter share.
Whatever happens the OR must be told because you can’t hold a controlling interest in property.
Kevin says
Can I just make sure I understand my situation correctly: I declared myself bankrupt at the end of 2018 (5th Dec 18) & was discharged from bankruptcy on 5th Dec 2019. I will continue to make payments until Feb 2022. My father has become terminally ill over the last 6 months & is not expected to have long left. If I were to inherit from his estate before my final payment, I will not lose any of this through my bankruptcy.
Sara (Debt Camel) says
That is correct. The OR a cannot claim any of your inheritance.
In theory it can effect your IPA, see article above, but that rarely makes a difference unless your inheritance is very large in which case it’s unlikely it would get through probate and you would get any of the money before your IPA a has ended.
Kevin says
The inheritance is not going to be large £50k shared 3 ways & there is no property or other assets involved. I only ask because the will has not yet been written yet and I didn’t want to get funds only to pay out again. Thanks you.
Sara (Debt Camel) says
That shouldn’t be any problem.