Death and Discharge During Bankruptcy

It’s not often that it happens but a debtor can die after their bankruptcy petiton is filed but before their discharge is granted. Unfortunately, this happened to one of our clients recently. I only knew her from working on her case with her but it still made me feel bad. While she passed on to a better place, she hired me to do a job and I intended to see it through.

Bankruptcy rule 1016 controls what happens when a debtor dies during the bankruptcy. It states:

Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event 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. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, 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.

Death During a Chapter 7

If the debtor is in a Chapter 7 bankruptcy, the case can be finished up and the debts can still be discharged at the conclusion of the case. In every bankruptcy case, the debtor has to appear at a hearing called a Section 341 Meeting of the Creditors. At the hearing, the Trustee asks questions about the debtor’s financial affairs. If the debtor has passed, someone familiar with the debtor’s financial circumstances can testify. For example, a surviving spouse or the Personal Representative of the decedent’s Estate. The mandatory Debtor Education course would have to be waived by the court based on the “disablity” of the debtor.

Death During a Chapter 13

Chapter 13’s are different from a Chapter 7 as a 13 requires a monthly payment plan. If the debtor has passed and cannot make the payments, the Chapter 13 plan will obviously fail. There are a few possible outcomes depending on the case: The court could dismiss the case. No further payments are made and the debts are not discharged; the Estate could continue making payments or make a lump sum payment to satisfy the obligations if the bankruptcy court allows it; and,  there is also the possibility the court would grant the debtor a hardship discharge and allow the immediate discharge of the debt without the need for further payments. None of these options are mandatory and are decided on a case by case basis by the judge.

Why Bother?

The single best reason to continue the case after the debtor dies is to allow the heirs to inherit free of any claims of creditors. While heirs, a spouse, or a personal representative are not personally responsible for any of the debt of the debtor, the Estate may be. A discharge eliminates any possible claims of creditors on any assets.

Time is of the essence in a situation like this. The bankruptcy court will not wait forever for something to happen and may dismiss the case if action isn’t taken right away.

Ready to talk? Ready to talk? Contact us and set up an appointment. Give us a call at  313-291-0240.

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy  lawyer who helps people with bankruptcy, family law,  and  estate  planning.  To find out more or set up an  appointment, click here  for  contact info. We help  people in Taylor, Allen Park, Southgate,  Lincoln  Park, Riverview, Trenton, Flat  Rock, Wyandotte, Brownstown,  Belleville,  Dearborn, Dearborn Heights, and the  Downriver,  Michigan  area.

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About Christopher McAvoy

I've been a lawyer since 1997 and I've seen a lot. We should talk. Not only do I have a lot of the answers, I will share them with you so you can make up your own mind. Chris McAvoy is a Taylor, Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.