The 180 Day Rule in Bankruptcy

Filing a California bankruptcy requires debtors to disclose all assets. Once you have listed all assets you can then apply exemptions to certain types and values of the property. These bankruptcy exemptions protect that specific real and personal property from being lost. The 180-day rule regarding windfall receipt of assets is an integral part of knowing which assets you must disclose including inheritance, settlement agreements, life insurance policy payouts, and any future payouts you may receive after declaring bankruptcy.

California Bankruptcy Exemptions

If you are planning to file for Chapter 7 or Chapter 13 bankruptcy, again, you must disclose all real and personal property. This includes not just the obvious such as your car and home, but also investments such as stocks, bonds, and annuities. In Chapter 7 bankruptcy, the bankruptcy trustee looks at all property not protected in your bankruptcy case via exemptions and will consider selling this property in order to pay back your creditors. Alternatively, in Chapter 13 bankruptcy you keep your property and pay its value back to creditors over the period of three to five years. California actually has two different sets of exemptions to choose from when filing Chapter 7 or Chapter 13 bankruptcy, known as the 703 and 704 exemption systems.

The 180 Day Rule

If you receive any money within 180 days of filing bankruptcy, you are required to disclose this to the bankruptcy trustee before your case is completed. During your Meeting of Creditors, your bankruptcy trustee may even ask you if you plan on receiving any money in the next six months. Some examples of these types of future entitlements include money you will receive from:

• Inheritance
• Bequest or devise
• Property from a divorce settlement
• Life Insurance payouts
• Death Benefit payouts
• Lottery Winnings
• Property from a personal injury settlement

An important aspect of the 180-day rule is timing. The US Bankruptcy Courts look at when you become entitled to receive the money, not when you actually take possession of it. If you expect to receive money from any of the above-mentioned situations, you should discuss the ramifications of filing bankruptcy with your bankruptcy attorney.

The 180 Day Rule and Bankruptcy Exemptions

The natural question that debtors filing Chapter 7 bankruptcy arrive at is: “can I exempt future money in bankruptcy?” In many cases, individuals will be forced to turn some or all of the money over to the bankruptcy trustee if the 180-day rule is triggered, however, the California bankruptcy exemptions do allow for certain types of property to be protected.

If you are expecting money that will be treated as part of a bankruptcy estate, it could cause you to have to turn over the funds to the bankruptcy trustee in a Chapter 7 case or pay more money back to your creditors in a Chapter 13 bankruptcy filing. Therefore, you should consult with your local California bankruptcy attorney before filing to discuss the proper timing for filing your bankruptcy, as well as, the possible outcomes for you based on your financial situation.