In a recent Chapter 13 case, a Trustee’s motion to modify a debtors confirmed plan to include a debtors post petition inheritance was granted. The debtor with a monthly income of $2,096, who had unsecured debt amounting to more than $20,000, had notified the bankruptcy court that he would be receiving between $25,000 and $40,000 in inheritance from a deceased relative. In response to this news the trustee filed it motion to modify the original plan to include the inheritance. The debtor of course argued in response that the inheritance would not be property of the estate and thus should not be included in the plan.
A case like this is governed by 11 U.S.C 1306, which deals with property belonging to the bankruptcy estate. Specifically under 1306(a)(1), a post petition inheritance becomes property of the estate when a debtor becomes eligible to receive by virtue of the death of the testator between the commencement of the case and before it is closed dismissed or converted. What this means for a Chapter 13 Debtor is that if a debtor receives inheritance before they have finished making payments on their plan then such inheritance will become property of the bankruptcy estate and will allow the Trustee to modify the plan accordingly.
In this case the Bankruptcy Court believed that the inheritance that the debtor had become entitled to was property of the bankruptcy estate. The court disregarded the fact that the debtor had not yet received the inheritance. Instead it focused on the debtor’s entitlement to the inheritance, stating that the date of the decedents death is the point at which a debtor becomes entitled to the inheritance. What all of this means is that if you become entitled to an inheritance during a Chapter 13 bankruptcy that inheritance becomes property of the bankruptcy estate, and such entitlement arises upon the decedents death not at the time when the debtor receives the inheritance.
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