On February 5, 2014, the 9th Circuit Bankruptcy Appellate Panel (“BAP”) issued an opinion in Dale v. Maney (In re Dale, 11-30579), holding that an inheritance received by the debtor in a Chapter 13 case more than 180 days after the filing of the case but before confirmation of the plan is property of the estate.
Mr. & Mrs. Dale filed their Chapter 13 bankruptcy case in October 2011. In August 2012, before a plan was confirmed, Mr. Dale’s mother passed away, leaving him $30,000. Maney, the trustee, demanded turnover of the funds. The Dales refused, the trustee moved for dismissal. The bankruptcy court granted the motion, and the Dales appealed.
When you file a case with the bankruptcy court, something is created called the “bankruptcy estate,” which includes everything you owe and everything you own, and a trustee is appointed to oversee that estate. You can “exempt” certain items of property (for example, in California, we have a $26,925.00 “wildcard” exemption, as well as special exemptions for specific categories such as personal effects and retirement accounts), but any assets above those exemption limits are part of the bankruptcy estate. A Chapter 7 trustee can liquidate those assets, while a Chapter 13 trustee can demand that you pay that much more into your plan.
In Chapter 7 cases, property of the estate is fixed at the time of filing. However, § 541(a)(5) of the Bankruptcy Code provides that any “bequest, devise, or inheritance” received by the debtor within 180 days of the filing of the case becomes property of the estate. Additionally, In Chapter 13 cases, property of the types specified in §541 that the debtor acquires during the case continue to become property of the estate (see § 1306(a)(1)). (That includes not just inheritances but also wages and rents collected.)
In deciding Dale, the BAP looked to the language of § 1306(a), which says that those types of property specified by § 541 continue to become property of the estate, even if acquired post-filing. It doesn’t say anything about the 180-day restriction. Therefore the Court held that § 1306(a), which is specific to Chapter 13 and which is intended to expand the property of the estate, overrides § 541’s 180-day time restriction.
The decision puts the Ninth Circuit in line with the Fourth Circuit, but leaves open the question of whether an inheritance received after the confirmation of the plan would similarly be property of the estate.