Case Summary - What Happens When a Chapter 13 Debtor Inherits Significant Assets Post 180 Days After Filing a Ch. 13 Case?

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The issue in this joint Chapter 13 (“Ch. 13”) case was whether the joint debtor's wife’s post-180-day inheritance should be excluded from the Bankruptcy Estate (“Estate”) under §541(a)(5)(A) of the Bankruptcy Code (“Code”), or whether the inheritance should be included in the Estate under § 1306(a)(1).

There is no issue that §541(a)(5)(A) prohibits a debtor’s post-180-day and inheritance from being included in a Ch 7 Estate; however, the majority of Courts around the country deciding the same issue in a Ch 13 case have held that a post-180-day inheritance can and/or should be included in a Ch. 13 case.

In our case, the Trustee’s Objection to Confirmation of the debtors’ Chapter 13 Plan, was resolved (after being fully briefed to the Court) along the lines of the decision rendered in In re Portell, 557 B.R. 161 (Bankr W.D. Missouri 2016) which held that the wife’s inheritance was part of the wife’s Ch. 13 Estate, and therefore must be used to directly pay off 100% of the wife’s individual and the debtors’ joint, general unsecured pre-petition debts. However, The In re Portell Court held that the wife’s inheritance was not part of the joint debtor husband’s separate Estate, and therefore could not be used to increase the amount scheduled to be paid to the husband’s general unsecured creditors for the husband’s individual debts.

In our case, the Trustee agreed not to require the wife’s inheritance to be used to pay off the husband’s pre-petition individual debts which the husband incurred before the joint debtors were married; the husband’s said pre-petition, individual, unsecured debt incurred before the debtors’ marriage amounted to approximately 90% of the husband’s entire individual and joint unsecured debt balance.

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