Getting an inheritance while bankrupt
Renee is a 52-year-old parent and grandparent from Newcastle, New South Wales. They work in an aged care home and earn about $35,000 a year.
After their divorce in 2013, Renee struggled with the increased cost-of-living expenses. More than 30% of their income went to renting their home.
They had to borrow money to pay for everyday expenses and owed $15,000 to a range of creditors – banks, lawyers, and utilities. They didn't own any assets that could be sold to cover their debts.
In mid-2016, Renee became bankrupt. Their trustee is the Official Trustee (AFSA).
In late 2017, Renee's mother passed away. The executor of their mother's will told Renee they were due to receive an inheritance of $45,000. Renee let AFSA know, as they knew they needed to report any money or assets they got while they were bankrupt.
AFSA contacted the executor and told them they needed to pay the inheritance directly to AFSA.
AFSA used the money to pay a government levy, its fees for administering the bankruptcy, plus Renee's debts and interest.* Altogether this totalled about $31,500.
Once everything was paid in full, Renee's bankruptcy was annulled – which meant the bankruptcy finished early. Renee received the remaining $13,500 from their inheritance.
* There were no legal costs or other fees involved in this situation. If there were, the cost to annul the bankruptcy would be higher.
Note: These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.