Property of Estate Includes Inheritance More Than 180 Days Post-Petition

Posted by NCBRC - March 3, 2014

The chapter 13 debtor inherited $30,000.00 from his mother more than 180 days post-petition but before the close of his chapter 13 case. When the debtor failed to turn over the inheritance for the benefit of creditors, the trustee moved to dismiss. Finding that section 1306(a)(1) brought the inheritance into the estate, the court granted the motion. The BAP for the Ninth Circuit agreed. Dale v. Maney (In re Dale), No. 13-1251 (B.A.P. 9th Cir. Feb. 5, 2014).

Section 1306(a)(1) provides: “(a) Property of the estate includes, in addition to the property  specified in section 541 of this title (1) all property of the kind specified in such section that the  debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first[.]”

On appeal, the debtor argued that, under section 541 inheritances are treated differently than other property included in section 1306. Specifically, paragraph 541(a)(5)(A) limits the capture of inheritances to those that occur within 180 days of the petition. The debtor argued that section 1306—a general provision—must be interpreted in such a way that the 180 time constraint is not read out of section 541—a specific provision. A plain reading of the statute dictates that section 1306’s reference to section 541 must include the limitations applicable to section 541(a)(5).

The BAP disagreed. The court cited the Fourth Circuit decision in Carroll v. Logan (In re Carroll), 735 F.3d 147 (2013), which addressed a similar issue and held that the inheritance was property of the estate. In Carroll, the court rejected the debtor’s argument that the general language of section 1306 should not be read to eliminate the specific time constraint set forth in section 541(a)(5). It found instead that section 1306 was specific to chapter 13 cases while section 541 was the more general statute applying to all estate property. The Carroll court was also unpersuaded by the debtor’s contention that section 1306 must be read to incorporate the property included in section 541 with that section’s specific time limitation. Instead, the Carroll court found that section 1306(a)(1) incorporates inheritances that would become part of the estate under section 541(a)(5), because they are acquired within the 180 day look-back period, and adds to that inheritances acquired by chapter 13 debtors any time prior to termination of the chapter 13 case. See also In re Howard, No. 07-3910 (Bankr. M.D. Fla. Feb. 3, 2014) (agreeing with Carroll and the majority of courts that property of the type set forth in § 541(a)(5), which is acquired more than 180 days post-petition, is property of the Chapter 13 bankruptcy estate).

Finally, the court in Dale found that the three cases cited by the debtor—In re Key, 465 B.R. 709, 711 (Bankr. S.D. Ga. 2012); In re Walsh, 2011 WL 2621018 at *2 (Bankr. S.D. Ga. June 15, 2011); In re Schlottman, 319 B.R. 23, 26 (Bankr. M.D. Fla. 2004) (finding that if provisions of § 541 apply to define property of estate in § 1306, the exclusions set forth in § 541(a)(5) also apply)—were undermined by the prior Eleventh Circuit case of Waldron v. Brown (In re Waldron), 536 F.3d 1239 (11th Cir. 2008). Waldron, however, did not deal with interpretation of section 541’s temporal limitation. In that case, section 1327’s re-vesting of post-confirmation property in the debtor was found not to prevent underinsured motorist benefits from entering the bankruptcy estate via section 1306.

Dale opinion



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