Chapter 7 Debtor Can Keep Part of Inheritance

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Daniel Gill Washington Reporter Jay Horowitz Washington Managing Editor

By Daniel Gill

A Chapter 7 debtor was allowed to keep a $2,000 distribution from his deceased mother’s estate because it was deemed abandoned by the trustee when the bankruptcy case closed five years earlier, an Ohio bankruptcy judge ruled.

The facts didn’t support an order modifying the prior order closing the case, which effectuated an abandonment of all unadministered assets, Judge John P. Gustafson, U.S. Bankruptcy Court for the Northern District of Ohio, wrote in his March 13 opinion.

Michael and Cathy Morris filed a Chapter 7 in 2008. In Chapter 7, a trustee is appointed to administer the debtors’ property for the benefit of their creditors.

At the time they filed, they listed among their assets “distributions from mother’s estate,” with an unknown value. During the case, the trustee received a distribution from Michael’s mother’s estate for about $4,700.

In 2011, the trustee filed her final report and account, noting the administration of the $4,700. The case was closed soon after.

In January 2017, the trustee learned from the estate administrator that an additional disbursement of about $2,100 would be coming. The money became available after the prior probate counsel’s fees were ordered disgorged.

The trustee said she was entitled to the money. The Morrises argued that the trustee abandoned any interest when the case closed.

The abandonment was effected by operation of 11 U.S.C. § 554(c), which states that scheduled property not administered at the time of closing is abandoned to the debtor.

The court found insufficient grounds under Rule 60 of the Federal Rules of Civil Procedure to modify the order closing the case entered more than five years previous.

The court said that the parties did what they were supposed to do. The debtor listed the asset, and the trustee administered the initial distribution. No one could reasonably foresee the additional distribution years later, it said.

It said that “given the importance of finality and certainty with respect to the conclusion of bankruptcy proceedings,” the unpredictability of the value of an asset doesn’t warrant revocation of a section 554(c) abandonment.

The court noted that allowing the relatively small amount of money to go to the debtors instead of the bankruptcy estate “does not amount to an oppressive hardship” on the trustee or the estate.

The Morrises were represented by Randy Lee Reeves, Lima, Ohio. The Chapter 7 trustee, Ericka S. Parker, Toledo, Ohio, represented herself.

The case is In re Morris , 2018 BL 85934, Bankr. N.D. Ohio, 08-36702, 3/13/18 .

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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