After Acquired Property
Property acquired after filing of bankruptcy
The general bankruptcy rule under s. 541(5) is that after-acquired property comes into the estate only for the first 180 days and if from inheritance, divorce or life insurance.
(5)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; (B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or (C) as a beneficiary of a life insurance policy or of a death benefit plan.
The result is different in a Chapter 13, where the estate includes everything listed in section 541, plus property acquired during the course of the bankruptcy.
(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; and (2) earnings from services performed by the debtor 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. (b) Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate.
Carroll v. Logan, No. 13-1024 (4th Cir. Oct. 28, 2013), involved a chapter 13 debtor whose mother died nearly three years after the case was filed, leaving the debtor $120,000. The debtor notified the court of the inheritance, but argued that section 1306 kept the inheritance out of the bankruptcy estate.
The court of appeals disagreed, holding that section 1306 expands the estate established by section 541(a) to include any property acquired during the chapter 13 case. This included an inheritance, notwithstanding the limiting language of section 541(a)(5). The court held the more specific language of section 1306 controlled the result. Flugence v. Axis Surplus Insurance Co., No. 13-30073 (5th Cir. Oct. 4, 2013), involved a chapter 13 debtor who was injured in a car accident three years into her chapter 13 case. A few months later, she sued for personal injury. The defendants soon asked the bankruptcy court to declare that the debtor was judicially estopped from suing the car accident defendants, due to the debtor’s failure to amend her bankruptcy papers to disclose the car accident lawsuit.
The appeals court held that the after-acquired property, in the form of the debtor’s personal injury lawsuit, was property of the bankruptcy estate. The trustee or creditors were entitled to be informed of the lawsuit, in order to argue that the lawsuit should be factored into the chapter 13 plan. By failing to amend the bankruptcy papers, the debtor had wrongly deprived the other parties of knowledge of the lawsuit. The result in Flugence was that the debtor was judicially estopped from pursuing her lawsuit against the car accident defendants, due to her failure to amend the bankruptcy papers to list the lawsuit as an after-acquired asset. Instead the trustee was permitted to pursue recovery for the benefit of the estate.
