Bankruptcy can solve most, and sometimes all, financial problems for some. It provides an opportunity to move forward in life without the heavy anchor of overwhelming debt. For many, it is a chance to make up missed payments on the family home over time so they don’t have to pack up the kids and dogs and find a new place to live. It does not solve all problems for all people. Then there are those times when life just comes along and happens. I happen to see that in a creditor meeting last week. I don’t know anything about the case, other than it was a Chapter 7, the young man lived with his mother, had no assets for the estate in his Schedules, and his concerned girlfriend was present in the room waiting for his meeting to finish. Then the Trustee said something that changed things completely: “I understand that your mother recently passed away.” The Trustee was as polite as he could be in asking, but it was his duty to see what assets were available to creditors and that includes property that a person inherits within 180 days after filing a Chapter 7 case. It turned out that this young man’s mother died just two weeks before the meeting and he was to inherit her house (which was also his home), which was free and clear of any debt. This means that the house became property of the estate, and the Trustee will, presumably, sell the house and the young man will be forced to move. What happened? What went wrong? Who screwed up?
Though I don’t know anything more about the case, it is likely that no one screwed up. The man appeared to be in his late 20’s to mid-30’s – not an age at which parents normally pass away. Almost all good Bankruptcy lawyers specifically ask their clients whether they expect an inheritance anytime soon, which is a more pleasant way of asking whether they have parents or close relatives who are very elderly or seriously ill. It is possible that the death of this man’s mother, just a couple weeks after he filed his case, was sudden and unexpected and could not have been anticipated. It just happened, and it happened at a bad time in the case (of course, for friends and family, any time is a bad time).
Can we all put on our 20/20 hindsight goggles and find a solution? Sure. If the mother was seriously ill before the case was filed, maybe the case could have been delayed or the family could have discussed the mother changing her will to give the house to another relative. It is possible that was discussed, and the young man decided to proceed with his Chapter 7. Even when parents and close relatives are not elderly or seriously ill, people filing Chapter 7 may choose to discuss their case with family members so that wills can be drafted or amended to avoid this situation. They can always be changed back after the 180 day period runs. Realistically, most people with financial difficulties probably do not want to discuss their issues with extended family members, especially parents. Since a random passing of a relative within 180 days of a Chapter 7 case, with a meaningful inheritance, is probably a pretty unusual occurrence, most people are simply willing to take their chances.
What can someone in this person’s position do? Of course, it depends on many more facts, but there are possibilities in some cases. The first option is to proceed with the Chapter 7, get a discharge, and move on. For some, this might be the only option. After all, it was never his house to begin with so he really did not lose anything. Others might be able to convert to a Chapter 13 depending on their income and debt, and keep the house. In some states, the debtor might be allowed to disclaim or refuse the inheritance, which means the house goes to other relatives as if it were never bequeathed to the debtor. If the house is worth enough, the debtor may be able to get a loan to pay off all of his or her debt, but that would be difficult for someone in Chapter 7 and most certainly would require a co-signer.
Life happens, and we pick ourselves up and move on. Most likely, this young man is mourning the loss of his mother far more than worrying about his Chapter 7 case right now.
Scott Riddle is a Bankruptcy lawyer in Atlanta, Georgia. You can contact him directly at 404-815-0164 or firstname.lastname@example.org, or through the contact page.