“Means Testing” and Post-Petition Income Sources and Assets

Drew Moore, Esq.
Stephen Berken, Esq.

Possible Treatments of Assets Acquired After Confirmation both as an Asset of the Bankruptcy Estate and as Income in a Chapter 13

Chapter 13 bases the Plan payments upon the projected disposable income (PDI) of the debtor. In all bankruptcies there is a delineation between exempt and non-exempt assets.  Some exempt assets can take the form of proceeds, for instance as from a personal injury settlement, inheritance, etc.  Prior to the settling of a claim, the claim may have a determinable dollar value.  

There is a trend nationwide which treats the asset of the claim as “income” which, it is argued, ought to be included within the debtor’s projected disposable income.  Other examples of assets include after acquired claims, etc.    Of course this in and of itself may raise the issue of whether there is an component of the property which is property of the bankruptcy estate.  This issue and some analysis of exemptions are below. 

These materials will examine the considerations and arguments supporting treatment of these types of assets as both property of the bankruptcy estate and then potentially as income, as well as the counter-arguments. 

After Acquired Property and the Bankruptcy Estate

While it is axiomatic that all property owned by the Debtor on the date of filing is property of the bankruptcy estate, 11 U.S.C. 541, there is a question as to under what circumstances what property the Debtor acquires after confirmation of a chapter 13 plan may be property of the bankruptcy estate.  The answer may turn on where the after acquired property was gained.  For instance and inheritance may have a different treatment than a personal injury award, marrying a new spouse after confirmation, or capitalizing on the appreciation in exempted real property.  

In some instances even if the conduct which created the cause of action occurred postpetition, if the facts given rise to the claim occurred prepetition the asset can still be considered property of the bankruptcy estate.   See Segal v. Rochelle, 382 U.S. 375 (1966)(property is property of the bankruptcy estate if it is “sufficiently rooted in the pre-bankruptcy past,”); seealso  Fix v. First State Bank of Roscoe, 559 F.3d 803 (8th Cir. 2009)(concerning postpetition litigation brought by a debtor for various claims arising from a letter the mortgage creditor sent to her prior to her bankruptcy filing).   Therefore in some instances it may be worthwhile to make sure that the entirety of the claim developed or arose after the bankruptcy filing date. 

If there is a question as to whether after acquired property has some component which arguably may be property of the bankruptcy estate, the applicability of exemptions should be examined. 


Exemptions are part of the overall consideration in any bankruptcy.  Exempt property is free from the claims of creditors, including the Trustee in bankruptcy.  Colorado is an opt-out state, C.R.S. § 13-54-107, and thus only its exemptions, applicable non-bankruptcy federal exemptions, apply to debtors who have lived in Colorado for two or more years.  

As relevant here, one of the main exemptions that would apply in after acquired property is the personal injury proceeds exemption, which is set forth below:

C.R.S. §13-54-102(n) relating to the personal injury exemption provides as follows “The proceeds of any claim for damages for personal injuries suffered by any debtor except for obligations incurred for treatment of any kind for such injuries or collection of such damages.” 

The purpose of the exemption statutes in Colorado and elsewhere is to protect certain property for the benefit of the person who can claim the exemption.  Pursuant to the Colorado Constitution, the exemption statutes are to be “liberally” construed in favor of the beneficial purpose of the exemption.   See Colo. Const. art. XVIII, §1 (“The generally assembly shall pass liberal homestead exemption laws.”; see also Sandberg v. Borstadt, 48 Colo. 96 (1910)(“Primarily, the exemption laws of the state are for the benefit of residents, and they are to be liberally construed.”); In re Larson, 260 B.R. 174 (Bankr. D. Colo. 2001)(“the long-standing tradition in the courts of Colorado to construe all exemption laws liberally in favor of debtors”).  

If a Debtor has a personal injury claim (PI claim) which arises after the filing and confirmation of a chapter 13, he or she has to duly update and amend the schedules.   F.R.B.P. 1007(h) requires amendment of Schedules within 14 days after the Debtor has information that he or she is entitled to an interest in after acquired property.   Further the failure to timely amend would jeopardize any claim which would have to be brought before a court by the doctrine of judicial estoppel.  See Flugence v. Axis Surplus Co., No. 13-30073 (5th Cir. Oct. 4, 2013)(holding that the Debtor who had a car accident three years into her plan was estopped to sue on the personal injury claim due to her failure to amend and was judicially estopped); In re Knupp, 461 B.R. 351 (Bankr. W.D. Va. 2011)(revoking the Debtor’s discahrge for faillure to disclose inheritance received postpetition).  Thus best practice is clearly to amend to note the after acquired property interest and defend against turnover or modification of the plan.  

At the time after acquired property becomes know, the Debtor would also want to claim any applicable exemption on Schedule C.   It would be common to value the claim as “unknown.”  Since Rule 1007 seems to require updating on an expedited basis, the valuation of a claim is dependent on a variety of factors which may not be known.  These factors include the medical expenses incurred, lost wages, intangibles such as pain and suffering.  If the claim is fairly new the Debtor may not have finished all medical treatment and may not have returned to work, etc.   

The typical PI settlement would be composed of the medical expenses paid, lost wages, future medical expenses, pain and suffering, and where appropriate punitive damages.  Each of these elements should first be examined to determine which portions are exempt and which are nonexempt.   

Medical Expenses

The entirety of the medical expenses which may be paid to the Debtor as reimbursement would be non-exempt according to the plain language of the PI Exemption. See Smith v. Exec. Custom Homes, Inc., 230 P.3d 1186, 1190 (statutes interpreted based on their plain language). That plain language specifically excepts from exemption “obligations incurred for treatment of any kind for such injuries …” from the PI Exemption. C.R.S. § 13-54-120(1)(n).  While non-exempt, the medical expenses would presumably be postpetition and be payable to the specific providers.

Next the issue of wages as exempt or non-exempt has not been fully litigated in Colorado bankruptcy courts.  The two possible outcomes are: the wages are subject to the wage exemption, or the wages paid as a result of a PI claim are fully exempt.  Each rationale is set forth below.

Wage claim as subject to the wage exemption:   One argument is that the PI exemption is silent as to lost wages such that their inclusion in the definition of “personal injuries” is unclear.  The PI Exemption could be read as a distinct subsection of Colorado Revised Statutes, Title 13, Article 54, all of which comprises the exemption scheme for personal property under Colorado law. As such, the PI Exemption could be read in pari materia with the wage exemptions set forth in C.R.S. § 13-54-104 (the “Wage Exemption”). That provision exempts 75% of an individual debtor’s earnings and clearly distinguishes earnings as a specifically exemptible item of personal property separate and apart from “personal injuries”.  C.R.S. § 13-54-104(1)(b)(I)(B) defines “earnings” as “funds held in or payable from any health, accident, or disability insurance.”

The contrary argument is that the wages are “proceeds” attributable to the injury.  SeeIn re Keyworth, 47 B.R. 966 (Bankr. D. Colo. 1985).  One of the factors considered by the Keyworth Court was the Colorado Jury Instructions.  Specifically Colorado Jury Instruction 6:1 provides for lost earnings as part of the personal injury damages, citing lost wages or income prior to trial, “loss of enjoyment of life,” etc., have been recognized as compensable, Hildyard v. Western Fasteners, Inc., 33 Colo.App. 396, 522 P.2d 596, 601 (1974).   Further a plain interpretation meaning “proceeds” as used in the PI exemption statute supports this conclusion. Smith v. Exec. Custom Homes, Inc., 230 P.3d 1186, 1190 (statutes interpreted based on their plain language).   

One fairly recent Tenth Circuit case has which addresses the classification of economic losses as “personal injuries.”   The David Court answered the question whether “personal injury” damages included economic damages, answering the question in the affirmative.  David v. Sirius Computer Solutions, Inc., Case No. 14-1125 (10th Cir. March 10, 2015).   Briefly the facts were that David sued Siruis for negligent misrepresentation resulting in personal injuries.  In her case the injuries awarded were all economic, as opposed to noneconomic damages.   After the verdict Davis sought prejudgment interest based upon Colorado’s prejudgment interest statute for actions to recover personal injuries.  The trial court determined economic damages were not personal injuries, but the Tenth Circuit Court of Appeals reversed finding that personal injuries include compensation for economic damages.   Thus a wage claim could be completely exempt under the Colorado PI exemption statute. 

After determining what, if any, property is property of the bankruptcy estate, the question becomes then: to what extent is it fair to treat an asset which may be liquid, such as, again, the proceeds from a personal injury settlement, as “income?”

Arguments that After Acquired Property is not Property of the Bankruptcy Estate

In addition to examining carefully whether an exemption applies, another initial question should be whether the property acquired is property of the bankruptcy estate.  The three applicable code provisions are §541, §1306, and §1327.     Section 541 broadly defines property of the estate as including all property, including claims, which the Debtor has as of the commencement of the case.  In addition, certain property acquired within 180 days after filing is also property of the estate, namely inheritances and life insurance proceeds.  §541(a)(5).  Section 1306 notes that property of the estate in a chapter 13 includes property of a kind that the Debtor acquires after commencement of the case but before dismissal, conversion or closure. §1306(a)(1).   However, §1327 provides: “Except as otherwise provided in the plan or the order confirming the plan, the confirmation of the plan vests all of the property of the estate in the debtor…free and clear of any claim or interest of any creditor provided for by the plan.” §1327(b).  So, does the after acquired property belong to the Debtor, the bankruptcy estate, or some combination of both?

Clyde Wilson filed a chapter 13 in Louisiana and had his plan confirmed.  Before the conclusion of his plan, he was injured in an automobile accident and received a sizable settlement.   The bankruptcy court was faced with two proposals: the first from the Debtor was for the plan to be prepaid using the settlement proceeds, and the second proposal was the trustee’s in which payment of 100% of the claims was sought to be paid using the PI proceeds.  In re Wilson, Case No. 11-81519 (Western Dist. La. August 5, 2016)(“In re Wilson”). 

In noting the inconsistencies between the treatment of after acquired assets, the Wilson Court summarized the most recent treatment of after acquired assets as follows:

Estate-termination approach — At confirmation, the estate ceases to exist and all

property of the estate, whether acquired before or after confirmation, becomes

property of the debtor.

Estate-transformation approach — At confirmation, all property of the estate

becomes property of the debtor except property essential to the debtor’s

performance of the plan; the Chapter 13 estate continues to exist, but it contains

only property necessary to performance of the plan, whether acquired before or

after confirmation.

Estate-replenishment approach — At confirmation, all property of the estate

becomes property of the debtor; the Chapter 13 estate continues to exist and

“refills” with property defined in §1306 that is acquired by the debtor after

confirmation, without regard to whether that property is necessary to performance

of the plan.  

Estate-preservation approach — The vesting of property in the debtor under

§1327(b) does not remove any property from the Chapter 13 estate, whether

acquired before or after confirmation; property remains in the estate until after the

case is closed, dismissed, or converted. The debtor’s rights and responsibilities

with respect to property of the estate may change somewhat at confirmation, but

the existence and composition of the estate are not disturbed by §1327(b).

Conditional-vesting approach — At confirmation, vesting gives the debtor an

immediate fixed right to use estate property, but that right is not final until the

debtor completes the plan and obtains a discharge.

Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Ed., §230.1, ¶230.1[9], Sec.Rev. June 8, 2004.

The Wilson Court ultimately determined to use the estate-replenishment approach.  In so doing the Court noted that a modified plan would be warranted pursuant to 11 U.S.C. §1329, and that the Court could balance look at the new reconciliation to be performed against the Debtor’s budget.  See In re Moran, Case No. 08-60201 (Bankr. N.D. Tex., Sept. 25, 2012)(holding that the best-interestsof-creditors test requires the reconciliation to be calculated as of the date of the modified plan which would include after acquired assets.)  However, even with a modification, within the budget the Debtor would be able to address the additional expenses occasioned by the personal injury and then increase the distribution to class 4.   Further the exemption issue should be carefully addressed at the time the schedules are amended as provided by Rule 1007. 

Inheritances deserve some special mention and treatment: inheritances and proceeds from death benefits.  As already noted, if received within 180 days of the date of filing, then the inheritance or proceeds are property of the bankruptcy estate per §541.  The issue which arises in Chapter 13 is whether an inheritance is also property of the bankruptcy estate.  On its face, §541(a)(5) extends the definition of property of the estate to inheritances and proceeds from life insurance which the Debtor receives.  If these after acquired assets are received more than 180 days from commencement and after confirmation, the majority of courts considering the issue have concluded that the inheritance is property of the estate even if outside of the 180 days from case commencement.  Carroll v. Logan, No. 13-1024 (4th Cir. Oct. 28, 2013)(holding that §1306 expands the definition of the bankruptcy estate nothwithstanding the limiting language of §541(a)(5)[i.e. the 180 day inclusion from commencement]); In re Dale, 505 B.R. 8 (B.A.P. 9th Cir. 2014)(same); In re Tinney, 07-42020 (Bankr. N.D. Ala., July 9, 2012)(noting “[t]he benefits of chapter 13 come with a price tag, and we we see in the instant case some risk…the privilege of retaining encumbered assets and imposing a payment plan” requires the Debtor to commit the inheritance to fund his plan.)

Regardless of the particular approach, modification under §1329 is likely indicated and is discussed further in these materials. 

Post-Confirmation Income in Chapter 13

If the claim was known at the time of filing, then the claim would have to be valued and the nonexempt portion considered for liquidation purposes pursuant to 11 U.S.C. §1325(a)(4). Under that scenario, the debtor is required to commit all of his or her projected disposable income for confirmation of a Chapter 13 Plan.  However, the Code does not define “projected disposable income” and it has been left to the Courts to determine that.  The Code does define the current monthly income used for purposes of the Chapter 13 statement of current monthly income, but that is subject to individualized treatment per Hamilton v. Lanning 560 U.S. 505 (2010).  

The specific issue that can arise with certain post-confirmation assets is whether the asset is property of the bankruptcy estate, even though acquired post-confirmation, and next whether the “asset” or claim ought to fairly be considered income.  This requires further consideration of sections 541, 1306, and 1327 of the Code. 


Prior to the confirmation of a plan, only the debtor may seek modification pursuant to 11 U.S.C. § 1323. Court approval is not necessary and if the modified plan complies with §§ 1322 and 1325, which govern the necessary requirements of Chapter 13 plans.  Once a plan has been confirmed, however, the debtor’s ability to modify becomes more restricted. 

After confirmation, the debtor, trustee or holder of an allowed unsecured claim may modify the plan before completion of plan payments under 11 U.S.C. § 1329(a).  Although the Code does not mention the bankruptcy court from modifying the plan, the Bankruptcy Appellate Panel in the First Circuit held that it is statutorily precluded from instructing a debtor to file a modified plan. In re Muessel, 292 B.R. 712, 716 (B.A.P. 1st Cir. 2003).  Also conspicuous by its absence, the code does not mention that a priority or a secured creditor or the court may seek modification of the plan.

To modify a plan, post confirmation, the movant must file a motion. Fed. R. Bankr. P. 9013.  Notice of the motion to modify the plan must be served on all creditors.   Twenty-one days must be provided for the time to object to the modification. If an objection is filed, the matter is “contested” and a hearing will be scheduled. Fed. R. Bankr. P. 9014.  Movant bears the burden of proof as to the proposed modification.



 ADVANCE \u 5 When there has been a substantial and unanticipated change for the better in the debtor’s financial condition after confirmation, the trustee or an unsecured creditor may move for a modification and increases the debtor’s payments.  See Carroll v. Logan, 735 F.3d 147 (4th Cir. 2013) (the right to inherit $100,000 based on the death occurring several years after the chapter 13 was filed was property of the estate under section 1306 (a) and possible basis for modification).  

Let’s turn to the cases addressing when an after acquired asset should be counted as income for post-confirmation modification purposes.  

Cases Which Hold Assets as Income

In re Murphy, 474 F.3d 143 (4th Cir. 2007) (refinancing that exchanged debt for cash by debtors with reduced income not a substantial change, but sale of property for amount in excess of what could be anticipated at confirmation was a substantial change); In re Arnold, 869 F.2d 240 (4th Cir. 1989) (debtor’s income rose from $80,000 per year to $200,000 per year); In re Dale, 505 B.R. 8 (B.A.P. 9th Cir. 2014) (inheritance to which debtors became entitled more than 180 days after petition was property of estate).

In re Morris, 2011 WL 7145880 (9th Cir. B.A.P., Dec. 23 2011) Plan modification may require debtor to contribute income substitutes to plan.  Income substitutes, such as bonuses, not captured in a debtor’s plan payments may be included in a modified plan. In re Burgie, 239 B.R. 406 (9th Cir. B.A.P. 1999).

In re hall, 442 B.R. 754 (Bankr. D. Idaho 2010) held that Where the debtors, following the confirmation of their Chapter 13 plan, received $44,377.50 in lump sum awards of Social Security disability benefits, as well as a monthly award going forward of $1,133, the court granted the Chapter 13 trustee’s motion to modify the debtors’ plan so as to require the debtors to contribute to the plan the $15,000 of the lump sum awards that the debtors had not spent. The court also held that the debtors could be required to increase their monthly plan payments to the extent that the monthly Social Security benefits increased their available income, although the court determined that, inasmuch as the debtors’ expenses had increased, there was no change in their available income. In ruling that the debtors could be required to contribute their Social Security benefits, the court reasoned that, while the benefits were not subject to distribution to creditors by a trustee in a liquidation case, this limitation did not prevent debtors from applying a disability award to current expenditures, such as food, shelter, transportation, and other necessities, thereby freeing up non-Social Security income for contribution to the debtors’ plan.

In re DelConte, 2012 WL 1739788 (Bankr. E.D. Va., May 15, 2012), the debtor wife received an inheritance of a one-half interest in certain real property upon the death of her mother on December 20, 2010, but the wife transferred her interest in the property to her sister rather than reporting it to the Chapter 13 trustee, the court said that, in light of the unique circumstances of the case, the court would permit the wife to remedy the situation and receive a discharge by modifying her Chapter 13 plan to provide for payment in full of unsecured claims within 30 days. Should she fail to take such action, the trustee could submit an order dismissing her case without a discharge. In the alternative, the wife had the right to convert her case to Chapter 7 or to voluntarily dismiss her case without receiving a discharge. The debtors contended that, as the 60-month term of their plan had passed, it was impossible to extend the term of the plan in order to give them time to pay unsecured claims in full. The court reasoned that, had the wife disclosed the inheritance when it was received, or even at a time just prior to the transfer to her sister, she would have perhaps been able to modify the Chapter 13 plan to address the inheritance. Her untimely disclosure had obviated that possibility. The court said it could not excuse the wife’s violation of the confirmation order simply by noting that the disclosure came too late to enable debtors to modify their plan. This was a serious violation: An asset that might have been used to satisfy the claims of unsecured creditors had been transferred beyond their reach.

Cases Which Do Not Treat Assets as Income

In In re Nelson, 189 B.R. 748 (Bankr. D. Minn. 1995) the court denied the debtor’s motion to modify because her change in financial circumstances was anticipated and her own fault (i.e., having married a man with a disability who only worked sporadically).  In re Powers, 202 B.R. 618 (B.A.P. 9th Cir. 1996) (five hundred dollars increase in debtor’s income justified plan modification, even after taking into account debtor’s increased expenses);  In re Fitak, 121 B.R. 224 (S.D. Ohio 1990) (sale of debtors’ property 57 months after confirmation for $20,000 more than value estimated at time of confirmation was not an unanticipated change of circumstances justifying modification motion of creditor because property would have been expected to appreciate over time).

ADVANCE \u 5In re Salpietro, 492 B.R. 630 (Bankr. E.D.N.Y. 2013) (denying trustee’s motion for plan modification based solely upon $970 reduction in debtors’ mortgage payment following loan modification); In re Eckert, 485 B.R. 77 (Bankr. M.D. Pa. 2013) (debtors’ short term increase in income was not sufficiently stable to justify modification requiring large increase in plan payments); In re Flennory, 280 B.R. 896 (Bankr. S.D. Ala. 2001) (receipt of tax refund was not change of circumstances that could not have been anticipated and did not justify modification).  But see In re McAllister, 510 B.R. 409 (Bankr. N.D. Ga. 2014) (denying trustee’s request for modification because life insurance proceeds received following wife’s death more than 180 days after petition were not property of estate); In re Peebles, 500 B.R. 270 (Bankr. S.D. Ga. 2013) (inheritance rights acquired more than 180 days after petition were not property of estate and could not be basis for modification).   In re Trobiano, 532 B.R. 355 (Bankr. Colo. 2015) (trustee objected to plan, requiring debtor to turnover future income of one-third of gross income in excess of $65,652.  Court denied trustee’s request, citing possibility of unforeseen future expenses.) 

The court In re Smith, 514 B.R. 464 (Bankr. N.D. Tex., Aug. 6, 2014) held that property of the bankruptcy estate is not “disposable income” for a Chapter 13 debtor.    At issue were the proceeds from the post-confirmation sale of approximately 400 acres of the debtors’ 458–acre tract, which had appreciated in value.  

In re Daniels, 2013 WL 365107 (Bankr. E.D. N.C., Jan. 29, 2013) (case no. 8:11-bk-8830) (Chief Bankruptcy Judge Randy D. Doub) holding both the personal injury settlement as exempt and the income not countable for purposes of a modification.    Seealso In re Connor, 11-CV 12544 (District Court Eastern District of Michigan January 23, 2012) the District Court (acting as the appellate court) overturned the bankruptcy court’s utilization of exempt settlement proceeds as “income.”  The Court determined that since the amount, or existence of the funds, was unknown at the time of filing, was not “known or virtually certain at the confirmation of the plan.”  Citing both In re Vargas, BK 10-13103 (Bankr. D.R.I. Sept. 27, 2011), and In re Walker, No. 07-70358 (Bankr. C.D. Ill. Oct. 21, 2010) the Court found that a mere potential recovery did not meet the Hamilton v. Lanning ‘known” or ‘virtually certain’ concept of disposable earning.  

In re McAllister, 510 B.R. 409 (Bankr. N.D. Ga., April 3, 2014) holding that although the rule may be different in other circuits, under In re Walden, 44 Fed. Appx. 946 (11th Cir. 2002), a modification may not require a debtor to use property that is not property of the bankruptcy estate to pay unsecured creditors. Accordingly, where the court had concluded that life insurance proceeds received more than 180 days postpetition was not property of the estate, the court could not approve the Chapter 13 trustee’s proposed modification of a confirmed Chapter 13 plan so as to require the debtor to contribute the proceeds to pay unsecured claims.

In re Peebles, 500 B.R. 270 (Bankr. S.D. Ga., Sept. 26, 2013).  The parties stipulated that an inheritance received by one of the Chapter 13 debtors more than 180 days postpetition was not property of the estate.  Since the inheritance was not property of the bankruptcy estate, it is not part of a debtor’s disposable income.  The debtor’s receipt of the inheritance did not support a modification of their confirmed Chapter 13 plan, and the trustee’s motion to modify the plan so as to increase the debtors’ monthly payment would be denied. 


 Section 1329(a) of the Bankruptcy Code provides:

At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to TBWMC.

(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments;
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan; or
(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor . . .

 In re Kearney, 439 B.R. 694, 696 (Bankr. E.D. Wis. 2010) (debtor bears burden if proponent); In re Than, 215 B.R. 430, 434 (B.A.P. 9th Cir. 1997) (creditor bears burden); In re Brown, 332 B.R. 562, 564 (Bankr. N.D. Ill. 2005) (trustee bears burden if debtor objects).