Inheritance and bankruptcy proceedings – how to protect assets and avoid debts?

Reflecting on the issue of inheritance in bankruptcy proceedings it is necessary to draw attention to how the law regulates inheritance issues in general. It should be noted at the very beginning that, although there is no legal definition of inheritance, on the basis of the provisions of the Civil Code, it can be stated with some simplification that it refers to all the property rights and obligations of the testator, which at the moment of his death are transferred to the heirs, in accordance with Article 922 of the Civil Code.  

Contents

  The most important principles of inheritance law

1. What is an inheritance – acceptance of an inheritance with the benefit of inventory.

Considering the subject of inheritance in bankruptcy proceedings requires paying attention to how the law regulates inheritance issues in general. It should be noted at the very beginning that, although there is no legal definition of inheritance, based on the provisions of the Civil Code, it can be simplified to some extent that it refers to all property rights and obligations of the testator, which upon his death are transferred to the heirs, in accordance with Article 922 of the Civil Code. This means that accepting the inheritance simultaneously determines accepting the testator's debts. Therefore, it is worth doing so with the benefit of inventory, which means that the heir is liable for the inheritance debts only up to the value of the entire inheritance, and thus protects him from incurring additional consequences and costs from private money. Therefore, from the point of view of the inheritance creditor, it is very unlikely that he will be able to count on the satisfaction of his claim from the heirs' own assets. Under the provisions of bankruptcy law, the submission of a declaration of acceptance or rejection of the inheritance by the bankrupt himself depends on the issue of his exclusion from bankruptcy estate pursuant to Article 121 of the Bankruptcy Law.

b. What is included in the inheritance?

It is important, as already mentioned above, that the inheritance includes both the rights and obligations of the deceased, which are closely related to his person, but also rights that upon his death pass to designated persons regardless of whether they are heirs. From the point of view of the heir, he acquires such an inheritance upon its opening, which occurs upon the death of the testator. Appointment to the inheritance, following the applicable legal regulations, may result from both the act and the will, which is why the legislator regulates the issue of appointment to the inheritance through statutory inheritance, indicating that Statutory inheritance as to the entire inheritance occurs when the testator has not appointed an heir or when none of the persons he has appointed wants or cannot be an heir, while as to part of the inheritance occurs when the testator has not appointed an heir to this part or when any of the several persons he has appointed to the entire inheritance does not want or cannot be an heir

c. Statutory inheritance – order of inheritance of groups of heirs.

In the case of statutory inheritance, the legislator also regulated the issue of the order of inheritance by creating groups of statutory heirs. The first to be called to inherit are the children of the testator and his spouse, with the proviso that the share of the estate falling to the spouse cannot be less than ¼ of the entire estate. In the event of circumstances in which the child of the deceased dies before the parent, the share of the estate that would fall to him falls to his children in equal parts.

If the testator leaves no children, his parents and spouse are called to inherit. The share of each parent in the estate is then ¼. In the case when the testator was not married, the share of the estate falls entirely in equal parts to his parents. The next group of heirs are siblings. In the absence of the testator's siblings and descendants of the testator's siblings, the entire estate falls to the testator's grandparents; they inherit in equal parts. In the absence of the testator's spouse, their relatives and children of the testator's spouse, called to inherit by law, the estate falls to the commune of the testator's last place of residence as the statutory heir. If the testator's last place of residence in the Republic of Poland cannot be determined or the testator's last place of residence was abroad, the estate falls to the State Treasury as the statutory heir.

Inheritance obligations and bankruptcy proceedings

a. Satisfaction of creditors in bankruptcy proceedings.

In the context of bankruptcy law, it should be stated that it is possible for inheritance creditors to satisfy their claims during bankruptcy proceedings. This situation applies to both claims that arose before the death of the testator, as well as to persons who acquired claims against the testator upon the opening of the inheritance. According to the applicable regulations, inheritance debts should be treated as arising before the declaration of bankruptcy, and therefore they will not constitute liabilities of the bankruptcy estate, pursuant to Article 230, Section 2 of the Bankruptcy Law. This is important because the same position is adopted even when the inheritance was opened after the declaration of bankruptcy. These liabilities should be classified as taken over by the bankruptcy estate due to inheritance by the bankrupt, made after the declaration of bankruptcy.

b. Order of satisfying creditors

The creditors of the estate will therefore have to be treated as creditors of the bankruptcy estate, in accordance with Article 189 of the Bankruptcy Law, regardless of when their claim arose. It should be noted that they will not be entitled to priority over other creditors of the bankruptcy estate, and therefore the order of satisfaction of creditors will continue to be determined by Article 343 of the Bankruptcy Law, according to which the bankruptcy estate first satisfies the costs of the proceedings and, if the bankruptcy estate funds allow, also other liabilities of the bankruptcy estate. Other liabilities of the bankruptcy estate include liabilities of the bankruptcy estate arising after the declaration of bankruptcy, in particular receivables from an employment relationship due for the period after the declaration of bankruptcy, liabilities for unjust enrichment of the bankruptcy estate, liabilities from contracts concluded by the bankrupt before the declaration of bankruptcy, the performance of which was requested by the trustee, other liabilities arising from the acts of the trustee and annuities due for the period after the declaration of bankruptcy as compensation for causing illness, incapacity for work, disability or death and annuities for the conversion of rights covered by the content of the life annuity right into a life annuity.

c. Necessity to file a claim

It should be remembered that the creditor of the estate is also obliged to report his claim, in accordance with the provisions of bankruptcy law. According to the regulations of art. 236 of the said act, a personal creditor of the bankrupt who wants to participate in bankruptcy proceedings, if it is necessary to establish his claim, should report his claim to the trustee within the time specified in the decision declaring bankruptcy via the IT system supporting court proceedings. The creditor is also entitled to report a claim if his claim was secured by a mortgage, pledge, registered pledge, treasury pledge, maritime mortgage or by another entry in the land and mortgage register or in the ship register. If the creditor does not report these claims, they will be placed on the list of claims ex officio. However, it should be borne in mind that in the event of opening an inheritance after Declaration of bankruptcy a situation may arise in which the deadline for reporting due receivables expires. In such a situation, in accordance with Article 253 of the Bankruptcy Law, it will be necessary to supplement the list of receivables.

The effects of bankruptcy in inheritance law - inheritance transfer agreement

Declaring bankruptcy of an heir may result in a change in the content of obligations or their due date. Monetary obligations become due on the day of declaring bankruptcy. Interest may also be charged from that same day, which should be satisfied from the bankruptcy estate. The basis for this change is Article 91, Section 1 of the Bankruptcy Law. Non-monetary obligations, on the other hand, are transformed into monetary obligations.

a. Disposal of all or part of the share in the estate

The legislator also regulates issues related to a possible attempt to dispose of all or part of the share in the estate, which the bankrupt would make. It should be noted that such an act is invalid after the declaration of bankruptcy. The purpose of this regulation is to prevent the intentional reduction of the bankruptcy estate. It should be recalled that in accordance with the applicable legal regulations, on the day of the declaration of bankruptcy, the bankrupt loses the right of management and the possibility of using and disposing of the property included in the bankruptcy estate. This means that if the bankrupt decides to make such an act, it is affected by the sanction of absolute invalidity, and therefore does not produce any legal effects. Such an act cannot be effectively confirmed by the bankruptcy trustee either. However, if such an act was made by the bankrupt before the declaration of bankruptcy, it may be questioned, on the basis of Article 527 of the Civil Code as a legal act made to the detriment of creditors.

b. Exclusion of inheritance from the bankruptcy estate

 However, it is necessary to remember about the situation in which the inheritance may be excluded from the bankruptcy estate. This happens when the assets included in the inheritance are difficult to sell or for other reasons the inheritance's entry into the bankruptcy estate would not be beneficial for the bankruptcy proceedings. In the event of the above situation, the bankrupt recovers management law in the scope of the inheritance, which results from the content of the regulation of art. 122 of the Bankruptcy Law, indicating that if the inheritance is excluded from the bankruptcy estate, the declaration of acceptance or rejection of the inheritance is submitted by the heir. The time limit for submitting the declaration begins to run from the moment the decision on exclusion becomes final. It should be noted, however, that in the case of exclusion of the inheritance from the bankruptcy estate, it is necessary for the judge-commissioner to issue a decision regarding the exclusion of the inheritance forming part of the bankruptcy estate in question

Death of the bankrupt during bankruptcy proceedings.

When analyzing the above issue, it should be emphasized that the death of the bankrupt after the declaration of bankruptcy does not suspend the proceedings. Nor does any obstacle arise that would prevent their continuation.

In connection with the death of the bankrupt, the heir takes his place as his natural successor. However, if the heir is not known, the judge-commissioner ex officio or at the request of the bankruptcy trustee will appoint a curator. Such a decision will lose its validity after the heir enters the proper proceedings. The successive obligation of the ascendant is to present a legally binding decision on the confirmation of acquisition of inheritance or a certificate of inheritance or a European certificate of succession.

Completion of bankruptcy proceedings and acquisition of inheritance

Creditors of the estate may seek satisfaction of their claims also after the end of bankruptcy proceedings, to the extent to which they were not satisfied during the proceedings, by means of enforcement facilities, pursuant to Article 425 of the Bankruptcy Law. This indicates that after the end or termination of bankruptcy proceedings, an extract from the approved list of claims, containing the designation of the claim and the amounts received on account of it by the creditor, is a writ of execution against the heir. This indicates that after the end or termination of bankruptcy proceedings, an extract from the approved list of claims, containing the designation of the claim and the amounts received on account of it by the creditor, is a writ of execution against the heir. However, in such a situation, one cannot forget about the application of the general inheritance rules concerning liability for debts, discussed above. In connection with this, the heir is obliged to submit an inventory list or have a court inventory list. The inventory may be submitted before the declaration of bankruptcy, during the proceedings, or after their completion.

 Summary

It should therefore be stated that the regulations of inheritance law affect bankruptcy proceedings. In particular, the issues raised concerning the acceptance of the inheritance, the assets included in it, as well as the order of inheritance according to the law. It should therefore be remembered that in the case of bankruptcy proceedings, the creditors of the estate have the possibility of pursuing their claims within the bankruptcy estate, but they must report their receivables, and the method of their satisfaction depends on the specific provisions of bankruptcy law.

In addition, the discussed effects of declaring bankruptcy in the context of the disposal of an inheritance and the possibility of excluding an inheritance from the bankruptcy estate have significant consequences for the management of the bankrupt's assets. Another important issue is the death of the bankrupt during the bankruptcy proceedings, which leads to the proceedings not being suspended and the heir taking the place of the bankrupt.

After the bankruptcy proceedings are closed, the estate's creditors may pursue their claims against the heir, and this process is carried out in accordance with the general principles of liability for estate debts, including the obligation to submit an inventory list or a court inventory.

Understanding these regulations is essential to properly managing the estate during bankruptcy proceedings, as well as to protecting the interests of all parties involved in the process.

Karolina Kaminska

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