Legal Question in Bankruptcy in California

Addressing the bankruptcy-related issue only, generally your bankruptcy estate (subject to rare liquidation in chapter 7 for repayment to creditors) is what property you have as of the time of filing; post-filing spousal or divorce property settlements, inheritances, and life insurance/death benefit proceeds are the main exception and they are property of the estate if the interest in them is acquired or you become ENTITLED to it within 180 days AFTER filing. Property of the estate also extends to what the estate itself earns or acquires after filing. Discuss 11 USC section 541 with your attorney as the above is a rough, partial summary not to be relied upon. What follows is that a post-filing gift from a live relative is not something that would normally be applied to repayment of debt (assuming there's no theoretical/potential challenge under the vague totality of circumstances or principle of equity/fairness while your case is still open; I'm assuming your case has been closed).

Please consult a tax attorney/CPA and your bankruptcy attorney.

This answer (as well as our Web site) doesn�t address all facts & implications of the question; it�s general info, not legal advice to be relied upon; it creates no attorney-client relationship; it may be pertinent to CA only and certain facts may be relevant to the San Diego court only; it�s independent of other answers. Seek legal counsel before acting or refraining from bankruptcy/legal action.

You'll need to consult with a tax attorney or CPA to obtain tax advice on this transaction. You'll almost certainly need to retain and pay for a few hours work on their part to review the transaction history and determine what, if any tax liability this might create. I strongly suggest that you do so before any action is taken on this as you do not need to be blind-sided by a large tax bill at the end of the year.

As far as bankruptcy, you'll probably want to contact the attorney who handled your case to discuss it. The timing may be very important. Section 541 of the bankruptcy code defines what is "property of the estate," meaning what is property that the Chapter 7 Trustee may be entitled to liquidate to repay your creditors. Section 541(a)(5) covers certain types of property acquired not more than 180 days after the commencement of your case, which include inheritance, divorce settlement or insurance proceeds. The foregoing is an over-simplification of the rule, so you should consult with your prior attorney to determine if you need to disclose this or not, and if there is any risk of liquidation.

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