Inheritances During A Chapter 13 Bankruptcy

If an individual inherits property after filing bankruptcy the inherited property can be subject to creditor claims, if the person leaving the property dies within 180 days after the bankruptcy filing. The death is the key date in this rule. Normally after death probate takes a number of months. and it would be sometime, before the debtor actually receives the property. However, as long as the death occurred within six months of filing bankruptcy the trustee can claim the property.

This issue comes up more often in Chapter 7 bankruptcies than in Chapter 13. In most Chapter 13s the amount the debtor has to pay to his creditors is determined by his income, and acquiring an inheritance will not make a difference. If the debtor’s payments are based on the amount of his assets though, which is an alternate test in a Chapter 13 the inheritance will make a difference. Also if the inheritance is large enough it could force the debtor to switch from the income test to the asset test.

In a 2014 court case a debtor in Chapter 13 did receive an inheritance and tried to avoid increasing his payments on the grounds that it was more than 180 days past the filing date. The court however ruled that the 180 day rule only applied to Chapter 7. Unfortunately for the debtor the court said that in a Chapter 13 the inheritance could be considered until the Chapter 13 plan was completed, which is normally 5 years.