Means Test and inheritance

[WilliamKF]

Hi,

Can't seem to find any answers on this searching the internet.

Is an inheritance considered income for the purpose of passing the means test for chapter 7?

Thanks.

-William

[justbroke]

If it hasn't been paid yet, it's an asset. If it has been paid within the six (6) months prior to filing, then it's income.

You will want to determine if there are exemptions to cover this inheritance. If the inheritance was a death benefit (beneficiary payment from the proceeds of a life insurance policy), your State may have exemptions specifically to cover some or all of this. Otherwise, you would need to use some other exemption (wildcard, cash exemption) to cover it.

The reason it's considered "income" is because of the definition of "current monthly income" in the Bankruptcy Code (11 USC 101) which basically makes everything income with very few exceptions.

[WilliamKF]

Inheritance becomes liability?

Yes, this is a life insurance policy benefit. I live in California. This would put us out of means test qualification if not exempted. Seems silly that such a benefit now becomes a liability (can't file) for us!

[justbroke]

Yes, this is a life insurance policy benefit. I live in California. This would put us out of means test qualification if not exempted. Seems silly that such a benefit now becomes a liability (can't file) for us!

You can't exclude it from your "income" by using an exemption. You can only exempt it from being seized by the Trustee, if you received it within 6 months of filing or up to 180 days after filing.

Ahh, but California has interesting exemptions on life insurance policies. I don't know if that particularly excludes them from being counted as income, but there may be some protection. In any event, you would wait until the benefit "rolled off" the six-month lookback period. (was at least 6-7 months before filing).

While this may put you over the median, the Trustee may not be necessarily looking to take it, but may be interested in seeing what you spent it on (like necessities).

Remember, the Means Test was designed to make sure debtors were actually qualified for Chapter 7. Congress added the notorious 6-month lookback period as the first part of the Means Test. Those under the median, based on the average of six-months of income prior to filing, would not have to complete the entire means test. Because Congress chose a broad definition for "income" in the new law... many things that you wouldn't expect get lumped in there.

However, think about it. What if you were about to file, and before you filed you received a $50,000,000 inheritance. Should you be able to file? The means test was designed to catch these types of things... but... unfortunately it's completely non-subjective and hence pools the person who just received a $2,000 inheritance from a death benefit (who is really under median, but just received the inheritance) from the person who just got the $50,000,000.

However, that's NOT the end of it. It just means that you need to complete the other portion of the means test. You could still qualify for a Chapter 7 after completing the means determination on form B22A. If you end up with less than $166 a month on that portion of the test, then you are home free.

[WilliamKF]

I'm already doing the later pages in order to qualify. If this is considered all income, it puts me out of the test even though it is a small portion of the debt.