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How To Stay In Bankruptcy – Even After You Die

Death may be the end of the road for many, but if someone is in bankruptcy then the case can still go on.

What if your loved one has filed for bankruptcy and dies before the case is over?

Does the bankruptcy case disappear, or does it continue?

How does it affect the administration of the deceased person’s estate?

What if it’s a joint bankruptcy case – and the other person is still alive?

Nobody ever said death was easy …

If The Debtor Dies During Chapter 7 Bankruptcy

If someone files for bankruptcy and dies before the case is over, that bankruptcy can – or in some situation, must – continue.

Chapter 7 bankruptcy creates an estate as of the date of filing, and that estate contains all of the person’s debts and assets as of that date. There’s no right to dismiss a Chapter 7 bankruptcy without court permission, so the debtor doesn’t have control over whether to continue to dismiss the action.

If the meeting of creditors has been held and concluded, the case will continue through to discharge. The lawyer will need to ask the court to excuse the requirement of a financial management certification unless it’s been done.

Related:

Things get thorny if the meeting of creditors hasn’t been held by the time the debtor dies.  The administrator of the probate estate (or, if there is none, the next-of-kin) needs to go to bankruptcy court and be appointed as what’s called a next friend. That will allow someone else to appear at the meeting of creditors on the debtor’s behalf.

If The Debtor Dies During Chapter 13 Bankruptcy

If a Chapter 13 bankruptcy case is pending while the debtor dies, there are two options:

  1. dismiss the case; or
  2. proceed in the same manner, so far as possible, as though the death had not occurred.

The problem here arises if the case is a joint bankruptcy – two spouses filing together.

If you filed for bankruptcy with your spouse, you can dismiss the case as to him or her only. Your bankruptcy case will continue, but your spouse will be dropped and dismissed.

Related:

Can A Spouse Continue A Chapter 13 Alone?

When spouses file a joint Chapter 13 bankruptcy case, both of their incomes are considered in determining the Plan payment and term.

With one spouse dead, however, the income scenario changes markedly.

If you’re in an active Chapter 13 bankruptcy case that you can’t afford anymore, here are some choices to consider with your lawyer:

First, Split The Case. When you file a joint bankruptcy case, i’s actually two separate cases that are filed under a single docket number and handled together.  You can split the case into one for you and the other for your spouse.

For The Deceased Spouse – Convert Or Seek A Hardship Discharge.  Depending on the reason for the Chapter 13 bankruptcy filing, you can either:

  • convert your spouse’s case to one under Chapter 7; or
  • request a hardship discharge.

For Your Chapter 13 – Continue, Dismiss, Convert, or Hardship. You can convert, dismiss your Chapter 13 bankruptcy case, or seek a hardship dismissal without splitting the case. But you can also make these moves independent of the deceased spouse.

For example, you can split the case and dismiss the spouse’s Chapter 13. Then you could continue your own Chapter 13.

Or split the case and convert your spouse’s case to one under Chapter 7. Then dismiss your case.

The options are complicated, and seemingly endless.

Death Can Be The End Of Bankruptcy – But It Doesn’t Have To Be

As you can tell, there are lots of options when it comes to handling death in the context of a bankruptcy case. It all depends on your goals, the debts and assets at issue, and how you can fit those facts into the context of the law.

Lucky for you, the law’s not nearly as inflexible as the Grim Reaper.

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By |January 10th, 2014|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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