What to do if we filed a Chapter 13 about 5 years ago that it is going to be discharged at the end of next month and now we will be receiving an inheritance?

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What to do if we filed a Chapter 13 about 5 years ago that it is going to be discharged at the end of next month and now we will be receiving an inheritance?

My father passed away last week and there is a small amount of money in his brokerage accounts that will be divided between my 2 sisters and I. Will past creditors from our bankruptcy try to come after this inheritance money or has time expired? Should we wait until the bankruptcy is discharged next month before filing any of the paperwork with with the brokerage accounts?

Asked on January 14, 2015 under Bankruptcy Law, Florida

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

First of all, an inheritance is considered received when you become entitled to it (usually when the decedent passes away), not when you actually collect it. So your inheritance will be affected your Chapter 13 repayment plan since most of your property becomes part of the bankruptcy estate. However, unlike in a Chapter 7, a Chapter 13 trustee does not liquidate your property and distribute it to your creditors. In Chapter 13, you get to keep your property but you must pay a certain portion of your debts back through a repayment plan. Accordingly,, if you receive a significant inheritance, the trustee will want you to pay more to your creditors. In other words, receiving an inheritance during a Chapter 13 can increase what you have to pay into your repayment plan.

However, how much you may be required to pay depends on when you received your inheritance. If it was received within 180 days of your filing the case, the trustee will require that unsecured creditors be paid at least an amount equal to the non-exempt portion of the inheritance. If your inheritance is received more than 180 days after filing, the bankrutpcy trustee may propose that you should pay the inheritance amount into your Chapter 13 plan. Thatt having been said, not all courts have ruled on this issue. For those that have, most have required the Chapter 13 debtor to pay the inheritance amount into the plan. However, a few courts have allowed a Chapter 13 debtor to keep their inheritances if they received it after the 180-day period passed. 

Since this can all get complicated, you really should consult directly with a bankruptcy attorney in your area.

 


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