Can the bankruptcy trustee take a cash gift before my Chapter 7 case is closed?

Answer:

A Chapter 7 trustee cannot take a cash gift that you receive after you file for bankruptcy unless you became entitled to receive it before you filed. If it is truly a gift, there is no "entitlement" so it's yours to keep.

(To learn how Chapter 7 works, see our Chapter 7 Bankruptcy area.)

Property Acquired After Filing for Chapter 7 Belongs to the Debtor

The general rule is that anything you earn or acquire after you file for Chapter 7 bankruptcy belongs to you and does not become property of the bankruptcy estate.

However, this does not include things that you acquired the right to receive before you filed for bankruptcy (even if the receiving would take place in the future). Some examples of things that you may not be able to keep even if you did not receive them before you filed for bankruptcy (unless they are claimed exempt) include:

tax refunds due for the prior year
recoveries on accidents where the accident took place before you filed
inheritances from people who died before you filed
breach of contract claims where the breach took place prior to bankruptcy, and
money owed to you from a date before you filed for bankruptcy even though it wasn't payable until after you filed.

Exceptions to the Rule

There are also some exceptions to the general rule. Under the bankruptcy law, there are certain things that the Chapter 7 trustee can take even if you acquire them or become entitled to acquire them within 180 days after the bankruptcy is filed. These include:

inheritances (see Inheritances in Chapter 7 Bankruptcy)
property settlements in divorces case (even if the case is not concluded), and
life insurance or other death benefit plan proceeds.

This may not apply if there are exemptions available to you for these assets and you amend your schedules to claim the item as exempt. (To learn more, see our Bankruptcy Exemptions area.)

For information on bankruptcy trustee powers and duties, bankruptcy trustee compensation, and more, see our Bankruptcy Trustee section.

by: Patricia Dzikowski, Attorney