7 Steps to Handling a Financial Windfall While in Chapter 13 Las Vegas Bankruptcy
Most Chapter 13 bankruptcies are cut-and-dry affairs. The debtor produces a payment plan based on his or her income, and the trustee distributes the payments to the creditors in their order of priority. Sometimes, debtors’ incomes rise or fall, whether due to job promotions, an improvement in the economy, or job losses. The Bankruptcy Code allows debtors to ask to modify their plans, or in the worst-case scenario, ask for a hardship discharge or a conversion to Chapter 7. One thing they might not be prepared for is receiving a large windfall—usually by inheriting property. What does one do when this occurs?
- Don’t sit on your hands. Dawdling or evading inherited property could get you into hot water with the trustee and jeopardize your bankruptcy.
- Figure out how much the property is worth, and whether you are the sole owner. Inheriting a piece of land from a deceased parent with a sibling is more complicated than winning the lottery.
- Look at the terms of your Chapter 13 payment plan. If it contains language obligating you to inform the trustee of “after acquired” property, then follow the instructions in your plan.
- If the Chapter 13 plan doesn’t contain any language about after acquired property, then you’ll have to turn to the Bankruptcy Code and rules of procedure. Section 541(a)(5) defines property of the bankruptcy estate as property the debtor would have acquired on the filing date or within the subsequent 180 days if it was inherited, received under a divorce agreement, or was paid out by a life insurance policy.
- Bankruptcy Rule of Procedure 1007(h) requires debtors to file supplemental schedules with the bankruptcy court within 14 days of finding out about the new property.
- It might be wise not to sell or spend an unreported after acquired asset just because it’s more than 180 days into the bankruptcy filing. The trustee might want it anyway and the consequences of disposing of it won’t be good.
- Also, it might be possible to “disclaim” an inherited asset, which means it passes to your next of kin as though you had died. Doing this might prevent the trustee from using it to pay off your creditors, but you might not be able to benefit from it yourself.
Chapter 13 is not a path people should take without the guidance of an experienced Las Vegas bankruptcy lawyer. The occasional instances of windfalls to debtors is just one more reason.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.