If Debtor Dies During Bankruptcy

When a debtor dies during a pending bankruptcy case, the case may or may not be dismissed depending on a few factors. The first factor is the bankruptcy chapter that controls the case. For a Chapter 7 case, the death of the debtor does not terminate the bankruptcy. For an individual bankruptcy case filed under Chapters 11, 12, or 13, the death of the debtor will affect the bankruptcy case, but does not necessarily terminate it.

During a Chapter 7 bankruptcy the court will continue the bankruptcy proceedings despite the death of the debtor. The reasoning is that all of the debtor’s assets, exemptions, and debts are determined at the time the case was filed, and the trustee is now in charge of liquidating any non-exempt assets. The participation of a debtor is not necessary. Bankruptcy Rule 1016 directs that “the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.”

Death of the debtor during a Chapter 11, 12 or 13 case poses different complications. Bankruptcy Rule 1016 states that “the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.” While dismissal of the bankruptcy is common in Chapter 11, 12, or 13 cases, the trustee may seek to continue the case per Rule 1016, the case could be converted to a Chapter 7, or the executor or administrator of the decedent’s estate may petition the bankruptcy court for a hardship discharge.

Since the bankruptcy discharge will only prohibit collection against the debtor personally, the question becomes, how will the debtor’s discharge affect the heirs to the estate? In most cases, an unsecured debt that is not a joint obligation will not pass to the decedent’s heirs. However, a creditor could obtain a judgment against the deceased debtor’s estate and attempt to collect from any available property. Consequently, the discharge is important to provide peace of mind and avoid any potential debt litigation or collection action.

The federal bankruptcy laws are very broad in scope and provide for benefits even under unusual circumstances, such as the death of a bankruptcy debtor. If you are struggling with debt you cannot afford to pay, speak with an experienced attorney and discover how the bankruptcy laws can help.

Meeting Your Bankruptcy Attorney

Many clients are intimidated when meeting a bankruptcy attorney for the first time. They fear that they will be asked judgmental questions and have to justify their financial distress. They fear that they will not be able to answer the attorney’s questions and somehow not qualify for bankruptcy and the relief they desperately need.

Nothing could be further from the truth.

The first thing you will discover when meeting your bankruptcy attorney is that your attorney is a good listener. You are the world’s foremost expert concerning your own finances, and your attorney is there to learn about your case from you.

The second thing you will discover is your attorney’s compassion. Bankruptcy attorneys really do care about their clients. Bankruptcy is one of the few areas of the law where the legal process is designed to have a positive result for the client. The goal of your bankruptcy attorney is to ensure that you are in a better financial position at the end of the case than you were at the beginning. Bankruptcy lawyers are caring individuals that have an active interest in your future success.

The third thing you will notice is how your attorney is able to quickly summarize what seems like an overwhelming problem into simple concepts. Your attorney will break down your finances into four categories: assets, debts, income, and expenses. From there you and your attorney can discuss what must be done to improve your financial situation.

Finally, you will be impressed with the clarity your attorney has for repairing your financial problem. A skilled bankruptcy attorney spends years studying, training, and gaining practical experience just so your case can be resolved quickly and efficiently. Bankruptcy law is all about paths to recovery and your attorney will guide you along a path that is best for you.

When you first meet your bankruptcy attorney, discuss your case openly and honestly. You will find that your attorney is dedicated to helping you attain a financial fresh start and improve your family’s finances.