Filing bankruptcy creates an estate. The estate consists of everything the debtor owns or is entitled to receive at the time the case is filed. Debtors can apply exemptions to their property to exempt it from the bankruptcy estate. Through the use of exemptions debtors receive the benefit of the automatic stay and the discharge without losing their exempted property. All nonexempt property is liquidated by a trustee and any money received is paid to the unsecured creditors.
Generally the bankruptcy estate only includes assets the debtor owns or is entitled to receive at the time the case is filed. However, the Bankruptcy Code does provide that if the debtor becomes entitled to a financial windfall within 180 days after the bankruptcy case is filed, the property receive is also part of the bankruptcy estate, and must be turned over to the creditors. It is important to understand that this rule applies to assets the debtor becomes entitled to even if they don’t actually take possession of the asset during this time period. Examples of financial windfalls include but are not limited to winning the lottery, receiving an inheritance, and a property settlement agreement with a spouse. Before filing a bankruptcy case, disclose to your attorney any funds or asset you expect to receive or become entitled to during the next year. Bankruptcy attorneys need all of the information pertaining to your financial situation in order to advise you whether bankruptcy is in your best interest and what it may cost you.