Chapter 13 Bankruptcy and Inheritance

If you have filed for bankruptcy under Chapter 7 or Chapter 13, but came into the possession of inheritance during the procedure, it is always wiser to seek the counsel of a bankruptcy attorney to understand the various aspects controlling it. It is mandatory under law for the debtor to reveal the inheritance as any willful attempt by him to conceal the fact can subject him to a federal charge of bankruptcy fraud that is punishable by imprisonment.

Chapter 13 bankruptcy and inheritance clauses are subject to the time when you inherit the asset. The federal law takes into account the time of the death of the loved one as the relevant period. If the death happens within 180 days of the date your petition for Chapter 13 bankruptcy is filed, then the law considers the asset to be part of the bankruptcy estate. The debtor is to inform the trustee and the court of the new development and bring about modifications to the payment plan based on the same. But where the Chapter 13 has got converted into Chapter 7 on account of the various reasons, even then, during the 180 days time frame, the trustee can sell off the property and utilize the income to distribute to the creditors.

If the death occurs after 180 days of the filing of Chapter 13, but within the stipulated time, the law makes it mandatory for the debtor to take into account the inherited asset to calculate the amount payable. The new payment schedule has to be sent to the court for approval. With the inclusion of the inherited property the debtor can gain respite from the outstanding amount earlier than expected. But in the event it occurs after 180 days where Chapter 13 got transformed to Chapter 7, the debtor can keep the property and enjoy the benefit arising from it.

Whatever are the circumstances surrounding it, where the value of the inherited property is more than $1,050,000, the debtor has to pay the estate duty before handing it over for the benefit of the creditors.