I’ve been involved in Chapter 7 bankruptcy cases where the debtor became entitled to an inheritance or insurance death benefit after he had already filed Chapter 7 bankruptcy. The rule is that any inheritance to which the debtor becomes entitled within six months subsequent to the filing date becomes part of the Chapter 7 bankruptcy estate. The bankruptcy trustee will take the debtor’s inheritance and use it to pay the debtor’s unsecured creditors.
This week I encountered for the first time a Chapter 13 case where the debtor became entitled to an inheritance over a year after the filing date and after the court confirmed the Chapter 13 bankruptcy plan. There is a general rule that once the court confirms the debtor’s Chapter 13 plan ownership and title of all property in the bankruptcy estate reverts to the debtor. Does this general rule apply to a debtor’s post-confirmation inheritance so that the Chapter 13 debtor gets to keep all of his post-confirmation inheritance and continue to pay the confirmed amounts to his unsecured creditors?
No. Any windfall the debtor receives during a Chapter 13 becomes part of his bankruptcy estate and increases the total amount payable to the unsecured creditors. I found a few court decisions dealing with Chapter 13 debtors who won a lottery or received large inheritances years after filing their Chapter 13 case, and almost all courts held that the debtor cannot keep the windfall unless he pays all of his unsecured debts.