Suppose you were a Chapter 13 debtor for the last two years of a 48 months plan then your mother dies leaving you as your inheritance a fully paid house with a fair market value of $250,000. Your Chapter 13 plan pays only 10% of your credit card debts of $100,000, leaving $90,000 to be discharged at the end of the 48th month. The $250,000 creates a problem in that you now have $250,000 which you did not have two years ago. If the $250,000 is not part of your bankruptcy estate, then there is no problem because the trustee would not have any jurisdiction over the asset. If the asset is part of your bankruptcy estate, then the trustee will have access to the asset for the benefit of your credit card creditors. If the trustee has access to the asset, then your plan payment will have to increase from 10% payment of $100,000 of credit card debt, to 100% payment of credit card debt of $100,000. In short, your plan payment will increase by $1,500 month if we extend the life of the plan by one year to make it a 60 months plan instead of 48. Because you inherited your mother’s house, instead of paying your credit card debt of $100,000 only $10,000, which is only $208 monthly for 48 months, you will have to increase your plan payment to $1,708 monthly!

If you do not have the ability to pay the higher amount of $1,708, then the trustee will sell the house you inherited for at least $250,000. The proceeds will be used to pay off all of the $100,000 credit card debt that you owe. Trustee will also pay all costs of sale and his legal fees to administer your bankruptcy estate, probably $50,000, then give you the difference of $100,000. I don’t think your mother will appreciate the fact that her house which took her a lifetime to payoff was used to pay off your credit card debts plus trustee expenses.

In Re Ormiston, the Chapter 13 debtors had a combined monthly income of $2,096. They had unsecured debt of $21,566, of which less than 1% was going to be paid through their confirmed plan. Before they finished their plan payments, the debtors notified the court that they were going to inherit between $25,000 and $40,000. The trustee responded to the news by filing a motion to modify the debtors’ plan to include the inheritance. The debtors responded that their inheritance was not property of their bankruptcy estate because it was received more than 180 days postpetition. When the trustee’s motion came before the court, the appeal of In re Carroll, was pending before the 4th Circuit Court of Appeals. Both sides agreed that it would be prudent to wait for the 4th Circuit’s ruling in Carroll before ruling on the trustee’s motion. In Carrol v. Logan (10/28/13), the 4th Circuit ruled that an inheritance received by Chapter 13 debtors before their cases are closed, dismissed or converted to one under Chapter 7 or 11, is property of the estate. The debtors argued that their case was different from Carroll because they had not yet received their inheritance. They pointed out that Section 1306 only refers to an inheritance that the debtor “acquires” postpetition while Section 541 refers to property interests that the debtor acquires or “becomes entitled to” postpetition. The bankruptcy court rejected this narrow interpretation. “Sections 541(a) and 1306(a), when read together, support the conclusion that the latter statute expands the time frame set forth in the former, incorporating into the bankruptcy estate any property interest specified in Section 541(a)(5)(A), such as an inheritance, regardless of when that property was actually received, provided that it was received during the life of the case,” the court said.” “The date of decedent’s death, not the date the will is admitted to probate or distributions made, is the point at which a debtor acquires or becomes entitle to acquire an inheritance …”

（楊清泉律師寫于1.21.14）