Can a Debtor keep an inheritance during a Chapter 13 bankruptcy?

During bankruptcy, most of a debtor’s property becomes part of the bankruptcy estate. Debtors who file a Chapter 13 bankruptcy are required to repay their creditors through a three to five year repayment plan. If a debtor receives an inheritance during their repayment plan, he or she may be required to amend their plan to account for the inheritance.

In a Chapter 13 bankruptcy, the debtor gets to keep his or her property, but must pay back a certain amount of their debt through a repayment plan. A debtor will usually make monthly payments to the bankruptcy trustee who distributes the money to the debtor’s secured and unsecured creditors. After this three to five year period, the court will discharge the debts.

Any property a debtor acquires during their Chapter 13 bankruptcy most likely will become property of the bankruptcy estate as well. This means an inheritance received during this period can become part of the estate.

A debtor who receives an inheritance will most likely have to pay more into the repayment plan than they were required to before receiving the inheritance. But how much depends on when the inheritance was received. A court considers an inheritance received when the heir becomes entitled to receive it. This usually occurs when the decedent dies, not when the heir collects it.

In a Chapter 13 and Chapter 7 bankruptcy, any inheritance a debtor receives within 180 days of the filing date is property of the bankruptcy estate. What is less certain is what happens to an inheritance received after 180 days of filing. The bankruptcy trustee will most likely argue the debtor should pay the inheritance amount into the Chapter 13 repayment plan. However, this issue is still undecided in some courts. Many courts who have heard this issue usually require the Chapter 13 debtor to pay the inheritance into the repayment plan. Recently, the Fourth Circuit Court of Appeals ruled an inheritance received after 180 days was a windfall and was to be included in the bankruptcy estate. However, a few courts have allowed a Chapter 13 debtor to keep the inheritance after this 180-day period.

Other property received after filing bankruptcy that may not be exempt during bankruptcy include property from a marital settlement, life insurance proceeds, lottery winnings and other rights a court may consider a windfall.

For more information on bankruptcy and inheritance in Florida, contact the Law Office of David M. Goldman, PLLC at 904-685-1200.