Bankruptcy

Pay On Death Account Paid To Debtor Within Six Months Of Chapter 7 Filing

By Jonathan Alper

Parents often set up their own checking accounts with a ?pay on death? instruction so that when they die the account will automatically transfer to their child without probate. The bankruptcy law state that any property you inherit within six months of filing Chapter 7 bankruptcy is drawn into your bankruptcy estate and paid to your creditors. This week I had a new bankruptcy client who was named on their parents?s POD account, and we discussed what would happen to their parent?s money if their parents died soon after this client filed Chapter 7.

Although I have never encountered a case where a debtor received a post-filing POD account, I do not think such account would be part of the bankruptcy estate because the child would not have acquired the money as part of an inheritance. The parents would have conveyed to the child during the parents? lifetime a revocable future interest in the account. Technically, the debtor?s future interest, although subject to revocation, is the debtor?s asset at the time they file. A parents? POD account would be difficult to administer in a child?s bankruptcy because the value of a revocable future interest is difficult to determine, and if the trustee made a claim against the POD interest the parent would revoke it.

In my opinion, if a debtor acquires a future interest in their parents? asset before filing bankruptcy, and receives the asset after filing, the asset has not been acquired as part of an inheritance subject to inclusion in the bankruptcy estate within six months. Some creditors and trustees may have a different opinion. I have not researched whether a bankruptcy court somewhere has dealt with this issue.

Full post as published by Florida Bankruptcy Law on October 22, 2010 (boomark / email).