What Happens When Someone Dies During a Chapter 13 Bankruptcy

Posted by Wesley Scott on June 22, 2020 at 1:42 PM
Wesley Scott

Life_After_BankruptcyIn my last post I wrote about the rules regarding inheritances as property of the bankruptcy estate – and my focus was on the rules that apply to people in chapter 7 cases. But there’s another chapter that the attorneys at Kain & Scott practice – chapter 13. And inheritances in chapter 13 cases are handled a little differently.

To recap: property of the bankruptcy estate includes property or money that a chapter 7 debtor becomes entitled to inherit either before the bankruptcy case is filed or within 180 days after the bankruptcy case is filed. And property of the bankruptcy estate is what is used to pay creditors in chapter 7 cases with non-exempt assets.

Almost every chapter 7 case is “over” before the six month time period runs out. But no chapter 13 cases are over 180 days after filing. By law, chapter 13 plans must be paid for a minimum of 36 months. So what happens if a chapter 13 debtor becomes entitled to inherit money or property?

If the chapter 13 debtor becomes entitled to inherit within 180 days after the case filing, then that inheritance is property of the bankruptcy estate. The chapter 13 debtor can exempt as much as possible of the inheritance, but the non-exempt part of the inheritance, if any, becomes part of the chapter 13 equation that determines how much money unsecured creditors are entitled to.

That’s not too different than chapter 7. But there is a difference if the chapter 13 debtor becomes entitled to an inheritance after 180 days after the case is filed.   In that situation, the inheritance is not property of the estate, but if there’s cash involved, it can be seen as income to the chapter 13 debtor. And the chapter 13 debtor is supposed to pay disposable income to the trustee to fund the plan. If the inheritance leaves the debtor with disposable income, the trustee must be told the details of the inheritance, and the trustee will ask that the debtor modify the payment plan to add some dollars for payment to creditors.

That doesn’t mean that all of the inherited money would have to be paid to the trustee. That can be negotiated. And this is where having an experienced attorney – like the attorneys at Kain & Scott – really comes in handy. Contact our office today for answers to questions like these. We can help! See us at www.kainscott.com. You will be so glad you did!

A word from MN Bankruptcy Lawyer, Wesley Scott