In bankruptcy, do inheritances go to the debts, or can the debtor keep them? Does timing matter? What about Chapter 7 vs 13? What happens when someone in a Chapter 13 bankruptcy receives an inheritance after confirmation?
It all depends on the chapter, and when the debtor got the interest. Not the money interest, but the property interest.
Let’s break it down.
Unvested stock options aren’t very common, but if someone gets compensated with contingent stocks, they can be worth a lot of money. Keeping the unvested stock options in a Chapter 7 bankruptcy liquidation, then, becomes critical.
The first place to start is determining whether stocks or stock options are property of the estate. Looking at 11 USC 541(a)(1), we see that “Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.”
Continue reading “Keeping Stock Options in Bankruptcy Depends on This Key Factor”
It’s not uncommon for a debtor in Chapter 13 bankruptcy to need to convert to Chapter 7 if debtor has a job loss or health problems. In a rising real estate market, homes can appreciate between confirmation and conversion. To whom does the appreciation in equity belong? This is where debtors and Chapter 7 trustees fight fiercely over the home and its new equity.
Continue reading “9th Cir: Here’s who gets Asset Appreciation in Converted Bankruptcy”
In Pancic v Lokan (In re Lokan), BAP No. OR-22-1249-CLB, Bk. No. 6:20-bk-62593-TMR (9th Cir. BAP 6/14/2023)(unpublished opinion), the Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”) held that the chapter 13 debtors converted their case to Chapter 7 in good faith and therefore a post-petition inheritance was not property of the chapter 7 estate.
Stephen and Brenda Lokan filed a Chapter 13 bankruptcy in Oregon on November 23, 2020 with unsecured claims of approximately $100,000. Their plan was confirmed with plan payments of $150 per month giving unsecured creditors about 10% of their claims.
Your chapter 13 case is confirmed, things are sailing along, and then it happens:Â there’s an inheritance or personal injury reward or life insurance payout or large asset of new property. Is this property of the estate, or is this the debtor’s and excluded from the bankruptcy case?
It all hinges on the tension between Sections 1306 versus 1327 of the Bankruptcy Code. Let’s see what all the fuss is about.
Continue reading “Post-confirmation Assets Part of a Chapter 13? It Depends”