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Carroll v. Logan, No. 13-1024

Decided: October 28, 2013

The Fourth Circuit held that a Chapter 13 bankruptcy debtor’s estate includes the debtor’s inheritance of property beyond the 180-day time limit under Bankruptcy Code § 541 but before the close, modification, or dismissal of the bankruptcy estate.

Bankruptcy debtors, Ricky and Cheri Carroll (“Carrolls”) filed for Chapter 13 bankruptcy in February of 2009. The reorganization plan approved by the bankruptcy court in August 2009 required the Carrolls to pay $2,416 for 6 months followed by $2,480 for 54 months. In August 2012, the Carrolls notified the bankruptcy court that Mr. Carroll anticipated a $100,000 inheritance after the death of his mother. The Chapter 13 trustee therefore moved to modify the Carrolls’ bankruptcy estate to include the $100,000 inheritance. Over the Carrolls’ objection, the bankruptcy court ordered the inheritance be included in the debtors’ plan to pay unsecured creditors. The Carrolls appealed the bankruptcy court’s decision to the Fourth Circuit.

On appeal, the Carrolls argued that the bankruptcy court erred in modifying the Carrolls’ bankruptcy estate to include Mr. Carroll’s inheritance because it occurred more than 180 days after the Carrolls’ bankruptcy petition. The Fourth Circuit disagreed based on its interpretation of Bankruptcy Code Sections 541 and 1306(a). The Court found that Bankruptcy Code Section 541 generally identifies the property in the bankruptcy estate to include, “any interest in property…that the debtor acquires or becomes entitled to acquire within 180 days [of filing the petition]…[including] by bequest, devise, or inheritance.” Then, the Court then explained that Bankruptcy Code Section 1306(a) expands the scope of the bankruptcy estate under Section 541 to also include, “all property of the kind specified in [Section 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted…whichever occurs first.” The Court determined that Sections 541 and 1306(a) together provided a formula for the bankruptcy estate that included the combination of: (1) property described in Section 541 subject to the 180 day time limit, and (2) property described in Section 541 (including inheritances) acquired before the Chapter 13 case is closed, dismissed or converted.  Beyond the plain language of the Bankruptcy Code, the court also noted that the majority of courts addressing the issue have also concluded that Section 1306 modifies the Section 541 time period in Chapter 13 bankruptcies. Therefore, the court held that the bankruptcy court properly included Mr. Carroll’s inheritance in the Chapter 13 bankruptcy estate.

Full Opinion

– Wesley B. Lambert