Inheritances and Chapter 13 Bankruptcy Cases
If you recently received an inheritance, or if you know you may be receiving an inheritance soon, you should know that it may impact your Chapter 13 bankruptcy case. Yet the way an inheritance will affect a Chapter 13 bankruptcy case is much different than how it will affect a Chapter 7 bankruptcy case. In Chapter 7 cases, courts need to know about all assets to properly classify them as exempt or non-exempt, and non-exempt assets will be liquidated in order to repay creditors and to discharge debts. In Chapter 13 cases, assets also must be properly classified as exempt or non-exempt, but assets are not liquidated. Instead, whether or not assets are exempt will affect the debtor’s Chapter 13 debt reorganization and the repayment plan.
Given the ways in which exempt and non-exempt assets are relevant to a Chapter 13 bankruptcy case, you may not be surprised to learn that an inheritance will not be distributed immediately to creditors the way it would in a Chapter 7 case. Instead, an inheritance will likely impact a debtor’s Chapter 13 repayment plan. Our bankruptcy lawyers in Oak Park can say more.
Inheritances Can Affect a Debtor’s Chapter 13 Repayment Plan
Since Chapter 13 bankruptcy does not involve the liquidation of the debtor’s non-exempt assets in order to repay creditors, an inheritance will not be liquidated and used to repay creditors. Instead, based on the timing of the inheritance, that inheritance is much more likely to affect the debtor’s repayment plan. In short, a debtor will likely be required to make higher payments each month as part of the repayment plan.
As long as you are still making payments as part of your repayment plan, even if 180 days from the date of your bankruptcy filing have long passed, the court may still say that the inheritance is part of the bankruptcy estate.
The 180-Day Rule and Inheritances
While the U.S. Bankruptcy Code does have what is known as the “180-day rule,” that rule does not always apply in the same way that it does in a Chapter 7 bankruptcy case. In a Chapter 7 case, inheritances received 180 days after a debtor files for bankruptcy will not become part of the bankruptcy estate, and the debtor can keep the inheritance. When a debtor receives an inheritance within 180 days of filing for Chapter 7 bankruptcy, however, then the inheritance becomes part of the bankruptcy estate and will be liquidated unless it is exempt.
In a Chapter 13 case, however, the 180-day rule is not often applied. Rather, if at any point during your repayment plan you inherit money that is non-exempt, a bankruptcy court may be able to require you to pay the amount of your inheritance to the repayment plan.
Cash Gifts
How about a cash gift you receive prior to or after the confirmation of your repayment plan? This kind of inheritance may be counted as income in a Chapter 13 case. Prior to your plan confirmation, unless the gift is exempt, you may be required to use that inheritance to pay unsecured creditors if you want to have your repayment plan confirmed.
However, if you receive the cash gift after your repayment plan is confirmed, Illinois law suggests that the trustee cannot ask the court to change the debtor’s repayment plan. Rather, the debtor can likely keep the cash gift, even if it is not exempt.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about inheritances and gifts during your Chapter 13 case, our Oak Park consumer bankruptcy lawyers can help. Contact the Emerson Law Firm today.
See Related Blog Posts:
Possible Policy Change Concerning Student Loans and Personal Bankruptcy
What Happens to an Inheritance in Chapter 7 Bankruptcy?
Given the ways in which exempt and non-exempt assets are relevant to a Chapter 13 bankruptcy case, you may not be surprised to learn that an inheritance will not be distributed immediately to creditors the way it would in a Chapter 7 case. Instead, an inheritance will likely impact a debtor’s Chapter 13 repayment plan. Our bankruptcy lawyers in Oak Park can say more.
Inheritances Can Affect a Debtor’s Chapter 13 Repayment Plan
Since Chapter 13 bankruptcy does not involve the liquidation of the debtor’s non-exempt assets in order to repay creditors, an inheritance will not be liquidated and used to repay creditors. Instead, based on the timing of the inheritance, that inheritance is much more likely to affect the debtor’s repayment plan. In short, a debtor will likely be required to make higher payments each month as part of the repayment plan.
As long as you are still making payments as part of your repayment plan, even if 180 days from the date of your bankruptcy filing have long passed, the court may still say that the inheritance is part of the bankruptcy estate.
The 180-Day Rule and Inheritances
While the U.S. Bankruptcy Code does have what is known as the “180-day rule,” that rule does not always apply in the same way that it does in a Chapter 7 bankruptcy case. In a Chapter 7 case, inheritances received 180 days after a debtor files for bankruptcy will not become part of the bankruptcy estate, and the debtor can keep the inheritance. When a debtor receives an inheritance within 180 days of filing for Chapter 7 bankruptcy, however, then the inheritance becomes part of the bankruptcy estate and will be liquidated unless it is exempt.
In a Chapter 13 case, however, the 180-day rule is not often applied. Rather, if at any point during your repayment plan you inherit money that is non-exempt, a bankruptcy court may be able to require you to pay the amount of your inheritance to the repayment plan.
Cash Gifts
How about a cash gift you receive prior to or after the confirmation of your repayment plan? This kind of inheritance may be counted as income in a Chapter 13 case. Prior to your plan confirmation, unless the gift is exempt, you may be required to use that inheritance to pay unsecured creditors if you want to have your repayment plan confirmed.
However, if you receive the cash gift after your repayment plan is confirmed, Illinois law suggests that the trustee cannot ask the court to change the debtor’s repayment plan. Rather, the debtor can likely keep the cash gift, even if it is not exempt.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about inheritances and gifts during your Chapter 13 case, our Oak Park consumer bankruptcy lawyers can help. Contact the Emerson Law Firm today.
See Related Blog Posts:
Possible Policy Change Concerning Student Loans and Personal Bankruptcy
What Happens to an Inheritance in Chapter 7 Bankruptcy?
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