UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
W. HALE a/k/a JERRY HALE
C. HALE a/k/a COLLEEN HALE
DEBTORS CASE NO. 91-00248
CUMBERLAND VALLEY NATIONAL
BANK AND TRUST COMPANY PLAINTIFF
VS. ADV. NO. 91-6195
JERRY HALE and his wife,
COLLEEN HALE; and JAMES
WESTENHOEFER, as TRUSTEE DEFENDANTS
This matter is before the Court for decision on the record. The Order of Submission was entered on April 15, 1992. The plaintiff seeks a determination of rights, denial of discharge to the debtors, and a declaration of nondischargeability of a debt owed by the debtors to the plaintiff. This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I) and (J).
The parties have entered into a Joint Stipulation which sets forth the following facts:
(1) On or about April 15, 1988, Jerry Hale and Colleen Hale, his wife, entered into a written agreement with Dan Hale and Alma Hale, his wife, conveying all of his assets in the estate of Virgie Hale to Dan and Alma Hale.
(2) The debtors filed their bankruptcy petition on April 1, 1991.
(3) Virgie Hale died intestate on or about June 9, 1991. At that time she was the sole owner of about 60 acres located in Laurel County, Kentucky.
(4) The issue to be decided by the Court as a matter of law, is whether the writing dated April 15, 1988, was legally sufficient, on its face, to accomplish what the debtors/defendants intended, which was to convey their interest in the estate of Virgie Hale.
The record in this case indicates that the plaintiff made two loans to the debtors, one on or about December 23, 1990, in the principal amount of $2500.00, and another on or about January 13, 1991, in the principal amount of $8600.00. These debts were properly scheduled in this proceeding. The plaintiff contends that Jerry Hale has a 1/4 undivided interest in the real property owned by his mother in Laurel County, and that therefore the debtors should have amended their bankruptcy petition to reflect their ownership interest in the property. The plaintiff contends that the ownership interest should be considered an asset of the bankruptcy.
Property of the bankruptcy estate includes property inherited after the filing of a bankruptcy petition. 11 U.S.C.'541)a)(5)(A) states:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located by whomever held:
(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date--
(A) by bequest, device, or inheritance;
Clearly then, the property which passed through the estate of Virgie Hale to Jerry Hale in the form of a 1/4 undivided interest in 60 acres in Laurel County would be considered property of the bankruptcy estate. The issue is whether the April 15, 1988, writing prevented Jerry Hale's interest from becoming property of the bankruptcy estate.
Kentucky law is clear that expectant heirs have nothing more than the possibility of inheritance and have no present interest in property they may later inherit. Ellis v. Ellis, Ky., 752 S.W.2d 781. The Ellis court quoted from 26A C.J.S., Descent and Distribution,'61 (1956) as follows:
'Before the death of the ancestor, an expectant heir or distributee has as such no interest, estate, or rights, particularly no vested interest or rights in the property which he may subsequently inherit. Any prospective interest, or right to inherit, as an heir is a mere expectancy or possibility, a mere hope or anticipation. An expectant heir cannot on the basis of his expectancy maintain an action during the life of his ancestor to cancel a transfer made by such ancestor, and he cannot maintain a suit for the enforcement or adjudication of a right in the property.'
At pages 782-783. Following this reasoning, Jerry Hale could not have conveyed any interest in his mother's property on April 15, 1988, because at that time he had no interest. In fact, Jerry Hale had no interest in that property until June 9, 1991, the date of his mother's death. On that date, which was after but within 180 days of the filing of the bankruptcy petition,'541(a)(5)(A) would require that any property interest of his pass into the bankruptcy estate.
The plaintiff herein has sought to deny the debtors a discharge and to have the debt owed to the plaintiff declared nondischargeable. The plaintiff maintains that in failing to list Jerry Hale's potential interest in his mother's real estate, the debtors knowingly, intentionally and fraudulently failed to disclose all assets of the bankruptcy estate. As set forth above, Jerry Hale had no interest in his mother's property at the time he filed his petition.
While the debtors did not list this expectancy interest on their petition when it was filed, they did file an amendment to Schedule B-2 on August 20, 1991, to include "Potential inheritance from decedent Virgie Hale (subject to agreement dated April 15, 1988, transferring all rights in inheritance to Dan Hale and Alma Hale)." The debtors did, therefore, disclose this potential asset of the bankruptcy estate and cannot be charged with an attempt to conceal it.
Therefore, in consideration of all of the foregoing, it is the opinion of this Court that Jerry Hale's 1/4 undivided interest in the 60 acre tract which passed through his mother's estate should be included in the assets of the bankruptcy estate. It is further the opinion of this Court that the facts of this case do not support a finding that the debtors concealed property of the bankruptcy estate so as to be denied a discharge in bankruptcy pursuant to 11 U.S.C.'727, nor do the facts support a finding that the debt to the plaintiff should be declared nondischargeable.
An order in conformity with this opinion will be entered separately.
BY THE COURT
Warren B. Little, Esq.
Ginger C. Knight, Esq.
James R. Westenhoefer, Esq., Trustee