Bankruptcy’s Three Little Words: Bequest, Devise and Inheritance

(Reprinted with expressed permission from BankruptcyMastery.com)
By Cathy Moran, Moran Law Group, Mountain View, CA

Bankruptcy’s 3 little words – unfortunately, they’re not “I love you” or even “I am sorry” but bequest, devise, and inheritance from §541(a)(5)(A).

Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—

(A) by bequest, devise, or inheritance;

This subsection is one of three exceptions to the idea that the bankruptcy estate consists of the property interests the debtor has at filing.

The reason I mention this provision is that I’m watching lots of lawyers conflate those words “bequest, devise, or inheritance” into “acquire by reason of someone’s death”.

Don’t fall into that trap.  Those three little words have precise meanings, found in state law.  Surowitz, 94 BR 438;  Roth 289 BR 161. Roth held that devise and bequest involved transfer by way of will.

Most commonly, it becomes important to parse this language when our debtor is the beneficiary of someone who died within the 180 days after the commencement of the bankruptcy case, with a living trust as their testamentary instrument.

To keep your client’s share of that estate out of the bankruptcy estate, you need to know whether state law would bring acquisition by trust within either of those three, critical words.

In Zimmermann, 306 BR 328,  my clients and I are delighted to report that neither bequest, devise or inheritance describes the method by which a California  beneficiary participates in a revocable trust, become irrevocable by reason of a post petition death.

This distinction is not relevant if the debtor has an interest in the estate of someone who has died prior to the bankruptcy filing.  If the rights in the estate have become fixed before filing, you may be  stuck dealing with the value of the inheritance and perhaps sharing it with creditors.

Unless, of course, the debtor’s interest is held in a spendthrift trust, enforceable under state law.

As an issue of planning, the corollary from this discussion is clear:  if the debtor stands to inherit (in the broad sense of the word) from someone whose health is precarious, inquire about the nature of the testamentary instrument involved.  Consider whether it is possible to have the putative donor revise the will in question to put any gift to your client outside of the reach of bequest, devise or inheritance.

———————————————-

moran_cathyCathy Moran has headed her own small firm Moran Law Group in Mountain View, California, for nearly 30 years. Family law and tax issues as they play out in bankruptcy are areas of particular interest to Cathy.

No Author Biography has been linked to this Article.

Related Articles

August 18, 2019
By Cathy Moran, Esq. (Redwood City, CA) My Google Alert popped up a lovely win for a Chapter 13 homeowner, but all I could see was the train wreck that lies ahead. The bankruptcy court ruled that the confirmed (and completed) plan trumped a late-filed mortgage proof of claim. Payment of the amount provided in the plan cured the prepetition...
Members
May 31, 2020
By The Honorable William Houston Brown (Retired) Only bankruptcy court issuing discharge order can enforce injunction. The Fifth Circuit held that only the bankruptcy court issuing a discharge order has authority to enforce the discharge injunction. The opinion reviews pre-2005 Code provisions and current 28 U.S.C. § 1963, citing other Circuits that “have insisted on a return to the bankruptcy...
Members
NalikoMarkel-150x150
October 23, 2022
The cloud seems to be all anyone wants to talk about these days in the tech field. I presented on it at the annual meeting in San Francisco this past summer and I presented on it at the first annual Region 9 I.T. Conference last month. I’m not tired of talking about it because the cloud is the future for...
Members
December 8, 2019
By Lawrence R. Ahern, III, Brown & Ahern (Nashville, TN) Part VI Two Things Debtors Should Know About the Small Business Reorganization Act of 2019 (SBRA), Including a Primer on Chapter 11 Confirmation Introduction This series focuses on four bankruptcy-related bills that were enacted during the 116th Congress and signed into law on August 23, 2019.1 One bill, the Small...
Members
Copy of Hildebrand-2016
Chapter 13 plan cannot be modified to treat a priority claim as general unsecured after the time for reconsideration of the order has passed. (Easterbrook) Matter of Terrell, 39 F.4th 888 (7th Cir. July 12, 2022) Case Summary The Terrells’ Chapter 13 plan proposed a classification to pay the State of Wisconsin in full as a priority claim because, they...
Members
Copy of Hildebrand-2016
January 29, 2023
Percentage fees collected by a Chapter 13 trustee prior to confirmation of a Chapter 13 plan must be returned to the debtor by the trustee if Chapter 13 plan is not confirmed. (Ebel) Goodman v. Doll, 2023 WL 216778 (10th Cir. January 18, 2023) Case Summary Daniel Doll filed Chapter 13 in November of 2017. The debtor complied with 11...
Members
August 22, 2021
By Cathy Moran, Esq., (Redwood City, CA) When a married couple books a bankruptcy consultation, you have an immediate problem: There be dragons, as early map makers helpfully provided. Because, as a lawyer friend of mine says: Anytime there are two people sitting across from you, you have a conflict of interest. That pithy expression has stuck with me and...
Members
March 21, 2021
By The Honorable Kevin R. Anderson, United States Bankruptcy Court for the District of Utah Coming off the longest economic expansion in U.S. history, Chapter 13 filings were at their lowest levels since 2007. With the country entering a sudden and unanticipated recession in February of 2020, we expected to see Chapter 13 filing rates increase; however, the opposite occurred....
Members
September 22, 2019
By Cathy Moran, Esq. (Redwood City, CA) I wrote earlier about calculating the projected income tax deduction on the means test when the year of filing situation looks much like last year. But what if things aren't the same year over year? Your job as a bankruptcy attorney becomes more complicated. It's suddenly more than figuring the tax refund or...
Members
Merideth Akers
August 14, 2022
You may recognize the title of this article as being the chorus line from the John Fogerty song entitled, “Centerfield.” The song is about a baseball player ready to enter the game. We are at the mid-point of the Major League Baseball season. Coaches will be instructing and motivating their teams in hopes of winning games and eventually winning the...
Members

Looking to Become a Member?

ConsiderChapter13.org offers a forum to advance continuing education of consumer bankruptcy via access to insightful articles, informative webinars, and the latest industry news. Join now to benefit from expert resources and stay informed.

Webinars

These informative sessions are led by industry experts and cover a range of consumer bankruptcy topics.

Member Articles

Written by industry experts, these articles provide in-depth analysis and practical guidance on consumer bankruptcy topics.

Industry News

The Academy is the go-to source for the latest news and analysis in the Chapter 13 bankruptcy industry.

To get started, please let us know which of these best fits your current position: