Bankruptcy, Inheritance, and Winnings – What Are Your Options?

Bankruptcy, Insolvency & Restructuring

Written by MBA Lawyers Partners Duane Williams, Matt Windle and Joelene Seaton

When considering bankruptcy, there are a number of consequences to be aware of, including appearing on a national register and restricted travel. Even with the consequences, bankruptcy can provide relief and give you a fresh start to overcome impossible financial challenges.

What Happens if I’m Gifted Money or Win Lotto While Bankrupt?

When there is a chance you may receive an inheritance, or win money, these monetary amounts are not automatically protected, which means your trustee can claim any money you become entitled to before or during your bankruptcy in order to repay your debts.


If you become a beneficiary to a Will during your bankruptcy, you, or the executor of the Will, must notify your trustee of any changes to your circumstances within 14 days of becoming aware of the entitlement.

If you receive an inheritance before your bankruptcy begins, you will need to put this on your application and may need to provide supporting documents on request.


Lottery winnings are not protected in bankruptcy. If you were to win enough to annul your bankruptcy, your unsecured creditors and the costs of administration will be paid, and you’ll get to keep any surplus funds.

If there aren’t enough winnings to annul your bankruptcy, the winnings will be paid to the bankrupt estate and your administration will continue.

I’m getting an inheritance, can I keep it?

A concept called “after-acquired property” is set out in the Bankruptcy Act  and means that any assets you become entitled to during your bankruptcy period, will be transferred to your bankruptcy trustee.

The law suggests that someone who is bankrupt may not have a right to a deceased estate’s assets when the relevant person passes. However, the courts have established that upon a person’s passing, the Will’s beneficiaries become entitled to have the deceased estate administered in accordance with the Will.

What does this mean? It means, if a Will has certain instructions relating to a bankrupt beneficiary, the courts will uphold these provisions.

Options for bankrupt inheritance beneficiaries in a Will

When writing a Will, the following options are available:

  • Amend the Will to exclude the bankrupt beneficiary for – at least – the standard bankruptcy period (three years).
    *Once the bankrupt beneficiary is discharged from their bankruptcy then the Will can be changed again to include the bankrupt receiving a benefit from the deceased estate.
  • Amend the Will to leave the assets to a discretionary testamentary trust where the bankrupt person can be a beneficiary, but it is at the trustee’s (of the testamentary trust) discretion whether to distribute anything to the bankrupt during the bankruptcy period.
    *If assets are held in a discretionary trust, where a bankrupt person is a beneficiary under the trust, these assets do not form part of a bankrupt estate unless a distribution is made to the bankrupt person during the bankruptcy period.

If either of these options are not stated in the Will, if any beneficiaries of the will are bankrupt at the time the person dies, that inheritance will be deemed after-acquired property that is lawfully due to be given to the bankruptcy trustee to repay debts.

Similar to lottery winnings, if an inheritance is used to annul your bankruptcy, you will get to keep any remaining inheritance.

We assist many clients who need the option of insolvency  for a fresh start and we are experts in Wills and Estates.

Contact our bankruptcy and insolvency team for expert advice about your options or contact our Estate Planning team  for any questions on how to ensure your Will is up to date. Call us on 07 5539 9688 or fill out our contact form.

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