What Happens To An Inheritance and Windfalls In Bankruptcy

| Category: Bankruptcy FAQ | What You Keep or Lose
Category: Bankruptcy FAQ | What You Keep or Lose | (6) comments

Any assets that you become eligible to receive while you are an undischarged bankrupt are subject to seizure while you are bankrupt. This includes any windfall you might receive while bankrupt including:

  • inheritance windfall and bankruptcyan inheritance while bankrupt,
  • lottery winnings.

Under the terms of the Bankruptcy and Insolvency Act if you receive an inheritance or windfall while bankrupt, your bankruptcy trustee is required to take the entire amount of the windfall and distribute the proceeds to your creditors.

Generally, your trustee will contact all of your creditors to determine the full amount owed (including allowed interest charges), and pay them in full. Once the creditors are paid in full, and the trustee’s fees are paid, any money still in the trustee’s possession would be returned to you.

If you win the lottery after you are discharged from bankruptcy you are entitled to keep the money.

Before filing bankruptcy, you should consider the following:

  1. How much money are you likely to receive as an inheritance?  If it’s a relatively small amount (i.e. significantly less than your total debts), then there is little risk to simply proceeding with filing for bankruptcy.
  2. As impolite as this question may be, ask yourself what is the likelihood that you will receive this inheritance during the length of your bankruptcy. If the chances are low, you could proceed with the bankruptcy now.
  3. If you expect your inheritance will be large enough to significantly reduce your debts, you could simply continue dealing with your creditors for now.  This approach will work unless one of them starts garnisheeing your wages, or taking other legal action.
  4. The final option would be to file a consumer proposal.  You make a proposal to your creditors based on what you can afford now, and if you happen to receive an inheritance you can use the funds to pay off the proposal quicker.

It is important before you file for bankruptcy that you advise your trustee if you are expecting a windfall or inheritance. By knowing what to expect,  you and your trustee can discuss your best options in more detail.

If you are considering filing for bankruptcy in Ontario, and have more questions, contact a Ontario Bankruptcy today for a free initial consultation.

Leave A Comment

  1. Desiree

    What if I file for an Ontario consumer proposal for the debt I accumulated because of someone else and I take them to small claims for the debt I already filed in the purposal. What would happen to the awarded money, would it be made to go to creditors or me?

    1. J. Douglas Hoyes, Trustee

      Hi Desiree. In theory, if you recovered money while in a consumer proposal, it would be your money. That’s different than in a bankruptcy, where all of your assets go to the trustee. There are many factors to consider, so you should discuss whether or not a consumer proposal is a good option with a licensed insolvency trustee.

  2. tracy

    What happens when your done your 2 yr and discharged. Family death and 2 yrs later the farm sells. What happens then. Is it your money? Thank you Tracy

    1. Ted Michalos, Bankruptcy Trustee

      Once you have been discharged, any interest you may have in a Will for a person that has not died returns to you. So in your example, if 2 years after you are discharged a family member dies and you are a beneficiary in their Will the money (or whatever they’ve left you) goes to you.

  3. Matthew


    What would happen in the case where someone is the spouse of a person with a disability and the only source of income is ODSP, but is appealing a “not disabled” decision from the Disability Adjudication Unit, and then attains “double disabled” status during the bankruptcy? Back-pay would be provided to account for the difference between the “dependent spouse” and “double disabled” basic needs accordingly. This would amount to most likely a maximum of $5000.00 and would most likely happen in approx month 7-8 of being bankrupt.


    1. Ted Michalos, Bankruptcy Trustee

      A number of factors might come into play. First if you are entitled to a retro-active ODSP payment you may also have to repay other benefits that you received based on your lower income at the time. This might use a fair bit of the retro-active money.

      Whatever money you are left with would have to be disclosed to your trustee and it might impact the Surplus Income Calculation. Surplus Income requirements are based on your average income over a number of months so it is ok if it is all posted to the month you receive the retro-money.

      If ODSP pays you a separate retro-active amount there are also rules for your trustee to follow as to how it is to be handled.

      So, speak to your trustee about your situation and they can help you determine what the impact on your bankruptcy may be.


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