Discharge received, then found out about inheritance...

[Stepane]

Good morning,

I know i have an unusual case here, but I thought I'd give it a shot since my attorney hasn't called me back.

I filed for Chapter 7 in March 2019 and received a discharge in July. Later I learned that I was was an heir to an estate that I had no idea I was part of. This is definitely part of the estate. I thought everything went to my uncle, who had hired some paralegals he really seemed to like to file the probate and whatnot. They told him he was only heir, which I think we all figured anyway.

Nothing happened on this probate for like a year. Then, my uncle died and his wife got an attorney to help her get through the probate process. The attorney let her know that we were heirs also. Either way, I had no idea what, if any property, cash, etc. we might be entitled to. Called the attorney, he said we just had to disclose the future inheritance. I advised him I'd let him know when I get more info.

I finally got the Order to Disburse on Monday. This had a dollar amount and showed how everything will be divided up. I believe I'll have enough to pay off all of my creditors in full, and there should be money left. The check should be here next week (so fast!). That said, when I was Googling to see what other fees I might be on the hook for, I learned that post petition interest is a thing in Chapter 7 BK if there's enough money after all creditors are paid when a debtor is solvent. I am pretty sure that though I was truly insolvent when I filed and discharged, and while I'm better off now, I still feel like I borderline on insolvency.

My discharged debt consisted of my home, a couple of cars, and credit card debt. I've kept up on the payments for the home and autos. This leaves just the CC debt. Am I on the hook for 2 full years of CC interest? I could find pretty much NO regular old consumer cases online that I could refer to in order to see how this might pan out, though there's plenty of torn opinions on Chapter 11 Bks, that reference the Chapter 7 provision for post petition interest. If I have to pay the CC interest for 2 years, plus the time that it takes for the trustee to administer the case, then I'll be lucky to get anything, I think. I could sure use some of that to handle a few home repairs. On the other hand, if they apply this at the Federal Judgement rate, then I should be just fine and will gladly pay (not that I had a choice...)

Does anybody know how interest is is typically applied when there are delays in gathering assets for administration?

[justbroke]

Welcome to BKForum.

So, I can't answer this question unless I know what you mean by the word "later." Timing is everything when it comes to an inheritance and a Chapter 7 bankruptcy. I'm assuming, since you believe that the inheritance is part of the bankruptcy estate, that you became entitled to receive the inheritance sometime before filing or within 180 days of filing.

You'll have to contact your Chapter 7 bankruptcy attorney and they will notify the Chapter 7 trustee. The case would be re-opened and the Trustee would send out a notice of distribution and urge creditors to file a claim. Whether or not all creditors will file a claim is like picking the winning Powerball number; there's no way to tell.

Whether or not interest would accrue is a good question. You're in the 9th Circuit Court of Appeals for the Unites States District Court (because you're in California). If they are still following Cardelucci (from 2002), then it's the federal judgment rate, not the contract rate. For what it's worth, the current federal judgment rate is currently less than 1.0% (the current rate is 0.07%). It's hard to calculate but see https://www.casb.uscourts.gov/post-j...interest-rates

[Stepane]

Thank you so much.

It's actually worse than the 180 days. The uncle who died intestate actually died a year prior to the BK. My other uncle was just told that he was the only heir. He was going to share once things cleared up, but then he died a year later. The probate actually hadn't been opened correctly. My aunt kept trying to get to the bottom of things, then finally hired an attorney who opened probate correctly, then identified my sisters and I as heirs as well. I had no idea we were entitled to anything. I wish I'd known PRIOR to filing/discharge. I just flat out wouldn't have filed.

I was thinking that this should follow Cardelucci as well, but i'm in the Eastern District. We tend to run a bit differently than the rest of California. I just wish the attorney would call back as the suspense is killing meeeeeee. If it's the federal judgment rate, this thing could drag on for years and I'd feel pretty good about it. I wouldn't have had to squander all of my uncle's money on past debts. Granted, I don't object to paying the creditors in full, but depending on the interest rate, this could mean that I can't do anything otherwise useful. Oh well. I didn't have it before. I've still saved a ton in interest, though that could go right out the window. Lol.

[despritfreya]

Confirming JB's comments:

1. If your uncle passed either before you filed or within 180 days after you filed the inheritance is an asset of the estate.

2. In a solvent Chapter 7 interest would be paid to those creditors who file claims. Interest is at the Federal judgment rate which pretty much nothing.

3. You need to have your attorney notify the Trustee, so the Trustee can begin the reopening process, getting a claims bar date, notifying creditors and then working toward paying the creditors who file claims - assuming the inheritance is property of the estate.

Des.

[Stepane]

Thanks! What a relief! The inheritance is totally part of the bankruptcy estate. I received my letter Monday. I've called and left voicemails twice since Tuesday and even emailed the order to the attorney. I hope he's just busy and doesn't have like COVID or something, otherwise, I'll feel like a jerk.

[justbroke]

I was thinking that this should follow Cardelucci as well, but i'm in the Eastern District. We tend to run a bit differently than the rest of California. I just wish the attorney would call back as the suspense is killing meeeeeee.

Cardelucci is the 9th Circuit so it supersedes anything at the lower levels including the BAP (Bankruptcy Appellate Panel) and the United States District and Bankruptcy Courts within the 9th Circuit. So that's pretty much what they call precedence.

despritfreya is also in the 9th (California, Arizona, Washington, Oregon, Alaska... et cetera) and stated that it's the federal judgment rate. As I wrote, it's currently 0.07% (this week) and has been less than 0.20% this year.

[Stepane]

Fantastic! Thank you both so much!! Now, I shall relax. If I don't hear back from the attorney though, should I contact the trustee directly? Like, I already know I'm paying the creditors in full and I have no concerns about that.

[justbroke]

I would really try to reach the attorney or their office. Perhaps call every day as well. It's better if you do this through your attorney. One of the things that will be important is to police the claims as they come in. Make sure the creditor is entitled to the amount that they list on the claim and make objections as appropriate.

[Stepane]

Sure will. I seriously expected it to be longer for me to get the check. Everything else was so slow... I'm just so afraid to have that check for even 5 minutes without the trustee knowing it's coming and that I intend to turn it over without a hassle. Thanks again for the help. I feel about 90% better now.

[justbroke]

Don't worry about the amount of time you're holding the check. In fact, my Trustee wanted me to cash any check that I received and then to send certified funds. They didn't want third-party checks as those could have endorsement issues that the Chapter 13 Trustee(s) don't want to deal with. Even a check from the IRS, they wanted me to deposit and then send certified funds.

[Stepane]

Awesome! I shall put the check into a savings account.

[Stepane]

Also, does anybody know if I pay trustee commission on top of the debt or does that come out of what he collects?

[justbroke]

The Trustee earns a commission on a sliding scale. If you are required to pay 100% (plus interest) of the allowed unsecured claims, then the Trustee would be paid a commission on top of the 100% (and interest). If you are paying less than 100%, then the commission comes from whatever amount that you're required to pay.

For example, debtor claims total $100,000 and the debtor inherits $200,000. A debtor would pay the allowed unsecured claims in full plus the Trustee's commission. The Trustee's commission is a sliding scale from 10% to 3%. The Trustee's commission on $100K is $4,500.

I think that is how it would work.

[Stepane]

Thanks! Also, I notice my student loans and taxes (now PIF) are listed in my petition, none of these are discharged and all are paid on time. Will they pay these too? I mean, I guess I benefit if they pay those, so it’s not so bad, but just seems unfair if they didn’t discharge.

[justbroke]

Are you saying that the student loans and taxes are now "paid in full" and that you no longer owe anything? What would happen is that the Trustee would send out a Notice of Planned Distribution and ask creditors to file a claim. At that time the creditors will file a new claim with the balance through the filing date, along with any interest that they seek since the filing date. You and your attorney will police the claims to make sure that creditors are not double or overpaid. Additionally you will look to object to creditors which shouldn't be paid.

As for non-dischargeable debt, such as taxes and student loans, they are not special other than being non-dischargeable. They too are unsecured debt. Unsecured debt in a bankruptcy is broken down into two major classes; general and priority. Most tax debt is "priority" unsecured debt, which means it gets paid first. All others are "general" unsecured debt. Your student loans are general unsecured debt, but just have the non-dischargeability added to them. Nothing changes their characteristic of being unsecured or "general" unsecured debt.

The payments are paid pro rata, meaning that the unsecured creditors are ranked based on the total percentage of all claims. Well, the priority debt is dealt with first, so the IRS non-dischargeable debt is paid first. Then, from the remaining, the "general" unsecured creditors are ranked based on a pro rata share of the total of (general) unsecured debt.

Example: your IRS priority unsecured debt is $25,000 and your general unsecured debt (including student loans and IRS "dischargeable" debt) is $50,000. Your student debt is $25,000 or 50% of the general unsecured pool. If your estate only has $50,000 to payoff the creditors, the IRS priority debt of $25,000 goes first. This leaves $25K for the general unsecured creditors. Since the school debt is 50% of the general unsecured pool, this means that the school debt would get $12,500 (50% of the remaining $25K), and the rest would get their "pro rata" share of the remaining amount. (The Trustee would also get a commission so those numbers would be a little lower.)

Hope that helps.