I am in chapter 13, mother died a month ago, I need to repay people for paying for funeral costs, a headstone, cemetery costs etc.
A debtor retains his or her property in a Chapter 13 case. It differs in that respect from a Chapter 7 liquidation. After you pay your mother's funeral and burial expenses, you should report the amount you have left over to your attorney. Your attorney may be required to report the amount of proceeds you have remaining to the Chapter 13 Trustee. That would especially be applicable if your plan proposes to pay your unsecured creditors less than 70 cents on the dollar. If the amount you have left over can easily be covered by your state exemptions, though, you would have no worries.
I think you have to report all the proceeds of the insurance to your attorney and also a detail of what needs to be paid for your mother's final expenses. Under the code as interpreted by case law, I think the entire insurance payout is property of the bankruptcy estate but most trustees are reasonable people and will understand that you may/will have expenses related to your mother's passing and will allow you to pay those expense out of the settlement but I would not pay the expenses first then report to the trustee.
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In our jurisdiction, our confirmation orders provide that all property remains property of the estate until dismissal or discharge. As a result, any post petition asset received prior to discharge becomes an asset of the bankruptcy estate and must be used to pay secured tax claims, unsecured priority and general unsecured claims. If there is enough to pay 100% to the three types of claims mentioned above, the debtor can retain the rest of the insurance or other post petition asset.
Most jurisdictions’ plan confirmation order provides that all property reverts to the debtor upon confirmation of the plan. Thus, post petition assets are not part of the bankruptcy estate. I have talked with some attorneys that have told me that in their court, the debtor was not required to urn over a personal injury settlement on a post petition injury or receipt of life insurance proceeds provided the person died more than 180 days after the petition date. However, it appears that even in jurisdictions in which property reverts to the debtor upon confirmation of the plan, a significant amount of the post petition recovery would have to be used to pay secured tax claims, unsecured priority claims and general unsecured claims.
If you have an attorney, you need to let him/her know about the life insurance that you will receive or have received. If you are pro se, you should contact the trustee or retain counsel to determine what legal actions you can take to keep as much of the money as possible.
Answers and comments provided are for general discussion only. My comments are not to be considered legal advice and they do not create an attorney-client relationship.
A huge percentage of life insurance claims get delayed and denied, which is why it is so important to retain an experienced life insurance attorney, one with at least fifteen years experience who can get you your benefits.
Michigan attorney here. In our jurisdiction, we can potentially retain some or all of it for repairs/replacement for your home or automobile, or for unexpected medical expenses. In order to do this, however, we need to file a plan modification.
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