In bankruptcy, timing can be very important. A recent case out of the Fourth Circuit illustrates this point, with a couple arguing that they ought to be allowed to keep their inheritance since they received it more than 180 days after their bankruptcy claim was filed. While the somewhat arbitrary 180-day rule might work to keep inheritances out of a bankruptcy estate in some cases, especially in Chapter 7 bankruptcies, the Court in this case went another way.
The Fourth Circuit Court of Appeals issued its decision this week regarding a bankruptcy case where a person who filed a Chapter 13 received a $100,000 inheritance. The Court ruled that the bankruptcy judge who handled the case was right to decide that the debtor’s inheritance ought to be considered part of the bankruptcy estate.
The case began when a couple, Rickey Dean and Cheri Carroll, filed for Chapter 13 bankruptcy protection. Under their repayment plan they agreed to make payments for 60 months. Three years later, the debtors notified the bankruptcy court that Dean’s mother had died and they expected to receive $100,000 in inheritance money. Because this inheritance occurred while the Chapter 13 remained open, the bankruptcy trustee attempted to modify their existing repayment plan to include this inheritance money.
Dean and Carroll vehemently objected, but the bankruptcy court overruled their objections, deciding that the inheritance money was part of their overall estate and that it ought to be included in the plan to pay back creditors. The two then appealed the ruling to the Fourth Circuit, arguing that the money should be excluded from the bankruptcy estate because it was acquired more than 180 days after the bankruptcy had been filed.
The majority of the Fourth Circuit disagreed with the couple, siding instead with the bankruptcy trustee. The Court wrote that the federal bankruptcy code is clear that debtors cannot deprive creditors of any part of a financial windfall that occurs prior to the closure or dismissal of a Chapter 13 case. The Court went on to explain that property of a bankruptcy estate is meant to be viewed broadly and includes all property that the debtor acquires before the bankruptcy case is closed, dismissed or converted to another variety of bankruptcy.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.
“DEBTORS’ INHERITANCE RECEIVED BEFORE CH. 13 CASE CLOSED IS PROPERTY OF BANKRUPTCY ESTATE,” by Diane Davis, published at BloombergLaw.com.
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