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How Does Bankruptcy Affect a Will or Inheritance in the UK?

· 16 min

Note: The following scenario is fictional and used for illustration.

Michael, 38, inherited £45,000 from his grandmother six months after declaring bankruptcy. He desperately needed the money—his financial situation had stabilized, he'd secured new employment, and the inheritance would have allowed him to rebuild his life.

Instead, the Official Receiver claimed the entire amount under Section 307 of the Insolvency Act 1986. After deducting £6,000 in fees, 8% interest on his debts, and paying creditors in full, Michael received £3,200 back—just 7% of his grandmother's gift.

Michael's situation isn't unusual. In 2024, 117,947 individuals entered insolvency in England and Wales—a 14% increase from 2023. Many don't realize bankruptcy can claim inheritances even after discharge if the deceased died before the discharge date.

This article explains how UK bankruptcy law affects your ability to make a will, receive an inheritance, or leave assets to bankrupt beneficiaries. You'll learn the critical timing rules, Official Receiver procedures, and protection strategies using discretionary trusts.

Table of Contents

Can You Make a Will If You're Bankrupt in the UK?

Bankruptcy does not affect your testamentary capacity under the Wills Act 1837. You can create, update, or revoke a will at any time during bankruptcy without notifying the Official Receiver.

The critical distinction is this: having the right to make a will doesn't mean you'll have assets to leave. Most assets vest in the trustee during bankruptcy, so your estate may be depleted before beneficiaries inherit anything.

Sarah, 42, declared bankruptcy in January 2024 with £58,000 in unsecured debts. In March 2024, she made a will leaving her home to her two children. While the will is legally valid, her home had already vested in the Official Receiver to pay creditors. Unless Sarah acquires new assets after discharge, her will may distribute an empty estate.

The Wills Act 1837 Section 9 requirements don't change during bankruptcy—you need to be 18 or older, have mental capacity, sign voluntarily, and have two independent witnesses.

Bankruptcy doesn't stop you making a will. It just means you need realistic expectations about what assets you'll have to leave after creditors are paid.

How Bankruptcy Affects Inheritances You Receive

Bankruptcy claims inheritances where the deceased died before discharge, regardless of when you actually receive the money. This principle catches many bankrupts by surprise.

The "after-acquired property" rule under Section 307 of the Insolvency Act 1986 gives the Official Receiver power to claim property that "devolves upon" you during bankruptcy. The date of death triggers your entitlement, even if probate takes 18 months.

James was declared bankrupt in March 2023. His uncle died in October 2023, eight months into bankruptcy, but the estate wasn't finalized until June 2024—three months after James's discharge in March 2024.

Despite receiving the £22,000 inheritance post-discharge, the Official Receiver claimed it because the uncle died before discharge. The critical factor is when the person died, not when James received the money.

You must disclose all inheritances to the Official Receiver during bankruptcy. Failing to notify them is a criminal offense that can extend your bankruptcy restrictions and lead to prosecution.

The timing of death—not the timing of distribution—determines whether the Official Receiver can claim your inheritance.

The Critical Timing Rule: When Did the Person Die?

Three timing scenarios determine whether you keep your inheritance or the Official Receiver claims it. Understanding these scenarios is the most important practical guidance in this article.

Scenario 1: Death before bankruptcy order means the inheritance was already your property when bankruptcy commenced. It automatically vests in the Official Receiver without any Section 307 notice required.

Scenario 2: Death during bankruptcy means the Official Receiver claims it via Section 307 notice.

Scenario 3: Death after discharge means the inheritance is entirely yours with no OR claim.

Most bankruptcies result in automatic discharge after 12 months if you cooperate. Mark your discharge date—it's your financial freedom date for inheritance.

Emma's mother died in December 2023. Emma declared bankruptcy in March 2024. The £35,000 inheritance automatically vested in the OR without Section 307 notice.

David's father died in August 2023 during David's bankruptcy. Even though David didn't receive the £18,000 until November 2024 (five months post-discharge), the OR claimed it because his father died before discharge.

Claire was discharged in April 2024. Her aunt died in September 2024. The £50,000 inheritance is entirely Claire's.

Deaths before discharge equal OR claims. Deaths after equal yours to keep.

After-Acquired Property Under Section 307 of the Insolvency Act

Section 307 of the Insolvency Act 1986 allows the Official Receiver to claim property acquired during bankruptcy. Section 307(1) states: "The trustee may by notice in writing claim for the bankrupt's estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy."

This gives the OR power to claim inheritances, lottery winnings, gifts, and other windfalls. "Devolved" includes inheritance from wills and intestacy.

The trustee serves written notice to claim the property. Once served, the property vests in the trustee retrospectively from the date of acquisition.

Richard won £8,000 on a premium bond draw in August 2024, seven months into his bankruptcy. The Official Receiver served a Section 307 notice claiming the winnings. Richard received nothing.

Section 307 covers inheritances, gifts, lottery winnings, compensation payments, and redundancy pay above protected amounts. It doesn't cover regular employment income, which is subject to Income Payment Orders under Section 310 instead.

Section 307 is the legal tool that allows Official Receivers to claim inheritance. Once they serve written notice, the property becomes theirs retroactively.

What Happens to Your Inheritance During Bankruptcy

Most bankrupts receive little or nothing from inheritances claimed by the Official Receiver. The process: you notify the OR in writing, they evaluate the inheritance value, serve a Section 307 notice if claiming, and instruct the executor to pay them directly. The OR deducts fees (minimum around £6,000), outstanding debts plus 8% interest, then returns any surplus if creditors are paid in full.

Lisa declared bankruptcy in May 2023 with £42,000 in debts. Her grandfather died in November 2023, leaving her £30,000. Distribution: £30,000 minus £6,000 OR fees equals £24,000 available. Outstanding debts with 8% interest: £43,680. Creditors received £24,000 (55%). Lisa received £0.

Tom declared bankruptcy in January 2024 with £38,000 in debts. His aunt died in July 2024, leaving him £85,000. Distribution: £85,000 minus £6,000 OR fees equals £79,000 available. Outstanding debts with interest: £39,520. Creditors received £39,520 (100%). Tom received £39,480 (46% of original inheritance).

The Official Receiver's fee structure includes a general fee and percentage of assets. The 8% statutory interest applies to bankruptcy debts.

How to Protect Bankrupt Beneficiaries in Your Will

Direct gifts to bankrupt beneficiaries won't work—the Official Receiver will claim them immediately. Discretionary trusts and protective trusts provide solutions by giving beneficiaries no legal entitlement to assets.

A discretionary trust gives trustees complete discretion over distributions. Because beneficiaries have no legal right to demand payments, the Official Receiver cannot claim trust assets. Trustees can provide for housing, education, and medical needs without creditors accessing the funds.

A protective trust operates as a normal life interest trust until bankruptcy or another "forfeiting event" triggers automatic conversion to a discretionary trust. This structure under Section 33 of the Trustee Act 1925 protects assets from creditors while benefiting your intended beneficiary.

Margaret wanted to leave her £280,000 estate to her son Daniel, who was bankrupt. Her solicitor advised a discretionary trust naming Daniel and his two children as beneficiaries. When Margaret died, the trustees paid Daniel's rent directly, covered his children's school expenses, and helped with essentials. The Official Receiver couldn't claim any assets because Daniel had no legal entitlement.

Consider trust creation costs, trustee selection, and trust taxation implications when using these structures.

You can still leave meaningful support to bankrupt beneficiaries by using trust structures instead of direct gifts in your will.

Executor Responsibilities When a Beneficiary Is Bankrupt

Executors face personal liability if they pay inheritance directly to a bankrupt beneficiary. Before distributing any estate, search the Individual Insolvency Register for each beneficiary. The register shows current bankruptcies and recent discharges.

If a beneficiary is bankrupt, contact the listed Official Receiver before making payment. Paying directly means the executor must pay the OR again—essentially paying twice.

Executor Helen distributed her father's £120,000 estate equally among three children without checking the Insolvency Register. She paid £40,000 directly to her brother Mark, unaware he'd been bankrupt for eight months.

Mark's Official Receiver demanded £40,000 from Helen personally because she'd distributed to a bankrupt beneficiary instead of the trustee. Helen was forced to pay twice—once to Mark, which he spent, and once to the Official Receiver from her own funds.

Executor checklist: Search the Individual Insolvency Register for all beneficiaries. If bankrupt, note the Official Receiver contact details. Request written confirmation about payment methods. Obtain written receipt when paying. Keep detailed records.

When contacting the Official Receiver, identify yourself as executor, state the deceased's name and date of death, confirm the beneficiary's entitlement amount, and request instructions for payment method and documentation required.

Executors must check the Insolvency Register before distributing estates. Paying a bankrupt beneficiary directly creates personal liability to pay the Official Receiver again.

Life After Discharge: When Inheritance Is Safe

Automatic discharge occurs after 12 months if you cooperate with the Official Receiver. Deaths occurring post-discharge result in 100% protected inheritance with no notification required.

Discharge doesn't erase past Section 307 claims. If someone died before discharge but the estate takes years to finalize, the Official Receiver can still claim it. Income Payment Orders can continue for three years separately.

Check the Individual Insolvency Register to confirm your discharge date. Bankruptcy notation is removed from your credit file after six years.

Timeline: Month 0 is bankruptcy order. Months 1-12 are the bankruptcy period when OR claims inheritances via Section 307. Month 12 is automatic discharge if cooperative. Post-discharge, inheritances from new deaths are fully protected.

Karen was discharged from bankruptcy in September 2024. In December 2024, her aunt died leaving her £15,000. Karen kept the full amount—she didn't need to notify anyone.

However, in February 2025, Karen learned her father had died in August 2024, one month before her discharge. When the £32,000 inheritance was distributed in March 2025, the Official Receiver claimed it because her father died before discharge.

Your discharge date is your financial freedom date for inheritance purposes. Deaths before equal claimed. Deaths after equal yours to rebuild with.

Real Scenarios: How Bankruptcy and Inheritance Interact

Five case studies show how different timing scenarios play out:

Scenario 1: Small Inheritance, Large Debts

Andrew, 29, declared bankruptcy in February 2024 with £52,000 in debts. His grandfather died in May 2024, leaving him £18,000. Distribution: £18,000 minus £6,000 OR fees equals £12,000 available. Outstanding debts with interest: £53,040. Creditors received £12,000 (23%). Andrew received £0.

Scenario 2: Large Inheritance, Surplus Returned

Priya, 44, declared bankruptcy in March 2023 with £28,000 in debts. Her mother died in August 2023, leaving her £65,000. Distribution: £65,000 minus £6,000 OR fees equals £59,000 available. Outstanding debts with interest: £28,933. Creditors received £28,933 (100%). Surplus returned to Priya: £30,067 (46%).

Scenario 3: Death Before Bankruptcy

Colin, 51, inherited £40,000 when his aunt died in November 2023. By January 2024, Colin declared bankruptcy. The inheritance immediately vested in the OR without Section 307 notice. Colin received nothing.

Scenario 4: Death After Discharge

Alison was discharged from bankruptcy in July 2024. Her uncle died in October 2024, leaving her £55,000. Because death occurred post-discharge, Alison kept 100%.

Scenario 5: Protective Trust

Robert's mother established a protective trust naming Robert and his daughters as discretionary beneficiaries. When she died in 2024, Robert was eight months into bankruptcy with £35,000 in debts. The £120,000 estate passed into the trust. The trustees paid Robert's rent and his daughters' school fees directly. The OR couldn't claim any assets because Robert had no legal entitlement.

Outcomes vary based on timing of death versus discharge, inheritance amount versus debt size, and protective structures.

Frequently Asked Questions

Q: Can I inherit money if I'm bankrupt in the UK?

A: Yes, but the Official Receiver will likely claim it. If the person died during your bankruptcy period before your discharge, the inheritance is considered after-acquired property under Section 307 of the Insolvency Act 1986. The Official Receiver can claim it to pay your creditors, minus their fees, typically £6,000 minimum, and 8% interest on debts. Only surplus funds, if any, are returned to you after creditors are paid in full.

Q: What happens to an inheritance if I receive it after bankruptcy discharge?

A: If the person died after your bankruptcy discharge, typically 12 months from the bankruptcy order, the inheritance is entirely yours. The Official Receiver has no claim to it, and you don't need to notify them. However, if they died before discharge but the estate wasn't distributed until after, the inheritance may still be claimed because the critical date is when the person died, not when you receive the money.

Q: How long can the Official Receiver claim inheritance after bankruptcy?

A: The Official Receiver can claim any inheritance where the deceased died before your bankruptcy discharge, even if you don't actually receive the money until months or years later. The critical date is when the person died, not when the estate is distributed. After discharge, only deaths occurring post-discharge are protected from bankruptcy claims. There is no additional time limit beyond the discharge date.

Q: Can bankruptcy affect my ability to make a will?

A: No. Bankruptcy doesn't prevent you from making a valid will or updating an existing one. You retain full testamentary capacity during and after bankruptcy under the Wills Act 1837. However, bankruptcy affects what assets you can actually leave behind, as your estate may be depleted by creditor claims and the Official Receiver before beneficiaries receive anything.

Q: How can I protect a bankrupt beneficiary's inheritance in my will?

A: Use a discretionary trust or protective trust in your will. These trusts don't give the beneficiary a direct legal entitlement to assets, so the Official Receiver cannot claim them. Trustees have discretion over when and how to provide benefits, allowing them to support the beneficiary by paying rent, buying essentials, and helping family without triggering bankruptcy claims. This structure continues working even after the beneficiary's discharge.

Q: What are the Official Receiver's fees for claiming an inheritance?

A: The Official Receiver typically charges a minimum of £6,000 in fees and costs before distributing inheritance money to creditors. They also deduct all outstanding debts plus 8% annual interest calculated from the bankruptcy order date. Only surplus funds, if any, are returned to you after creditors are paid in full. For small inheritances under £20,000, you may receive nothing after fees and debts.

Q: What happens if an executor pays inheritance directly to a bankrupt beneficiary?

A: The executor may be held personally liable. If they distribute inheritance to a bankrupt beneficiary instead of the Official Receiver or trustee in bankruptcy, they must make payment again to the trustee, essentially paying twice. Executors should check the Individual Insolvency Register at www.insolvencydirect.bis.gov.uk before distributing estates to avoid this costly mistake. Always pay inheritances to the trustee, not the bankrupt person directly.

Key Takeaways:

  • Know your discharge date: This is the dividing line for inheritance protection. Deaths before = Official Receiver claims; deaths after = yours to keep.
  • Notify immediately if you inherit during bankruptcy: Failing to disclose inheritance is a criminal offense that can extend your bankruptcy restrictions.
  • Protect bankrupt beneficiaries with discretionary trusts: If you're making a will and a beneficiary is bankrupt (or at risk), use discretionary or protective trusts instead of direct gifts.
  • Executors must check the Insolvency Register: Before distributing any estate, search for beneficiaries to avoid personal liability for paying them directly.
  • Bankruptcy doesn't erase your will-making rights: You can create or update your will at any time during bankruptcy, planning for financial recovery post-discharge.

Bankruptcy doesn't define your entire financial future—it's a 12-month period of restructuring, not a life sentence. Understanding how bankruptcy intersects with inheritance law helps you protect family wealth, plan realistically, and make informed decisions during a difficult time. Whether you're navigating bankruptcy yourself or planning to leave assets to someone who is, proper legal structures ensure your family's financial security isn't lost to administrative processes.

Need Help with Your Will?

If you're navigating bankruptcy or planning to leave assets to someone facing financial difficulty, your will needs careful structuring. Trust provisions and clear beneficiary designations become essential when bankruptcy intersects with estate planning.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete will (legally binding when properly executed and witnessed) plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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