Source: https://www.northerncaliforniabankruptcyattorneysblog.com/2014/09/chapter-13-debtors-beware-post-petition-inheritances-in-chapter-13.html
Timestamp: 2017-07-23 10:54:28
Document Index: 530429777

Matched Legal Cases: ['§1306', '§541', '§541', '§1306', '§541', '§541', '§1306', '§541', '§1306', '§541']

More than 180 days after Debtors (Robert and Kathy Dale) filed a chapter 13 bankruptcy petition, the mother of one of the two joint Debtors passed away, leaving Mr. Dale approximately $30,000. Nearly 2 months later, Debtors filed a declaration with the bankruptcy court disclosing Mr. Dale’s inheritance. The Chapter 13 trustee demanded that Mr. Dale turn over the inherited funds to the Trustee for distribution to Mr. Dale’s creditors. The Trustee subsequently filed a motion to dismiss Debtors’ bankruptcy for failing to make payments under their proposed plan. Later, the Trustee filed an amended motion to dismiss because: 1) the Debtors’ had failed to comply with the Trustee’s recommendations; 2) the Debtors had failed to disclose and turn over the nonexempt inheritance proceeds; and 3) the Debtors were still delinquent on plan payments. The Debtors argued that their case should not be dismissed because Mr. Dale’s post-petition inheritance was not property of the bankruptcy estate because he received the inheritance rights more than 180 days after filing bankruptcy. The bankruptcy court held that inheritance received by a chapter 13 debtor before the case is closed, dismissed or converted is property of the bankruptcy estate under §1306. The Debtors timely appealed this holding to the 9th Circuit Bankruptcy Appellate Panel (BAP), which reviewed de novo.
The issue before the BAP was whether §§541(a)(5)(A) and 1306(a)(1) require that post-petition inheritance be included in a debtor’s bankruptcy estate in a Chapter 13 case where the debtor’s inheritance is received outside of the temporal limit of §541(a)(5)(A) (ie. “180 days after filing”) but within the temporal limit of §1306(a)(1) (ie. after filing, but “before the case is closed, dismissed, or converted”). BAP Analysis:
This decision may be significant to professionals whose clients may be in in a position to receive some sort of large cash payment after filing a Chapter 13 bankruptcy but before the case is closed, dismissed or converted. Specific examples identified by the court include bequests, devises, and inheritances. Therefore, it may be advisable to ask a client about the health of family members and whether they expect to receive any inheritances from family members. A question raised by the court’s decision is whether it extends to “kinds of property of the estate” identified in §541 other than inheritances, bequests and devises. The court specifically stated that it applies to all kinds of property under §541, therefore, it is subject to the expanded timeframe of §1306(a): from post-petition until the case is “closed, dismissed, or converted”. Because the court’s decision extends to “kinds of property of the estate” identified in §541, a debtor’s settlement agreement or divorce agreement (for example) entered into before the Chapter 13 case is closed, dismissed or converted may be included in the Chapter 13 estate under §1306, whereas it would not be included in a Chapter 7 case under §541.
By Binder & Malter, LLP	Posted in: Case Notes/Summaries	Published on: September 16, 2014	Updated: