Inheriting when bankrupt

9 August, 2018

Bankruptcy can be stressful and confusing. If you inherit assets around the time you are bankrupt, what happens depends on the date of death and date your bankruptcy ends (‘is discharged’). Although bankruptcy shows on credit searches for several years, the discharge date is often one year after bankruptcy is declared; you can check if you have been discharged on the individual insolvency register. Your assets fall under the control of a ‘trustee in bankruptcy’ for the duration of the bankruptcy. 


You are the legal owner of an inheritance from the date the settlor dies. Even if the inheritance arrives after bankruptcy has been discharged, if the death occurred before or while you were bankrupt, it needs to be declared to the trustee in bankruptcy. If you are unsure whether you should be declaring an inheritance, it is best to do so. 

For example, if my uncle dies and leaves me £1,000 before or during the time I am bankrupt, even if I receive the money after bankruptcy is discharged, it belongs to my trustee in bankruptcy as it was part of my assets while bankrupt. The date of death is the date used (not the date I hear about the inheritance). I can only keep the £1,000 if I have been discharged before my uncle dies.

A bankrupt beneficiary must inform the trustee in bankruptcy about any inheritance they receive but executors are accountable too. Executors must check whether any beneficiary is bankrupt before distributing assets; if the executor does not check, and passes an inheritance to a bankrupt beneficiary, the trustee in bankruptcy can sue the executor for the value of what was passed to the beneficiary. Please contact Philip Youdan at