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What Happens When a Person Dies During Bankruptcy?

Posted by Rory Vohwinkel | May 03, 2019 | 0 Comments

While uncommon, debtors have been known to pass away during the course of a bankruptcy proceeding. For obvious reasons, this can greatly complicate a bankruptcy case. The outcome of the bankruptcy can have a serious impact on the deceased's loved ones and estate, so the outcome of the bankruptcy is still important even after death. What happens when a bankruptcy debtor dies during their bankruptcy proceeding depends on in large part on the type of bankruptcy filed.

How Death Affects Debt

When a person dies, their debt is only passed on to another person if the debt was owned jointly. But even in death a person's creditors can still reach the assets of the estate in order to satisfy the debt. That means the outcome of a bankruptcy case matters a great deal to a deceased debtor's heirs.

What happens when a bankruptcy debtor dies?

The death of a bankruptcy debtor does not mean the case is automatically dismissed. But what happens in each case depends largely on whether the bankruptcy was filed under Chapter 7 or Chapter 13.

Chapter 7

In most cases, the death of a debtor will not bring a Chapter 7 bankruptcy to an end. That's because under Chapter 7, a bankruptcy is essentially a liquidation. The work of liquidating the estate to satisfy creditors is the job of the bankruptcy trustee. This work can typically continue smoothly even after the death of a debtor. In most cases, a Chapter 7 bankruptcy will conclude with a discharge even when a debtor dies.

Chapter 13

Things are different in a Chapter 13 bankruptcy. Unlike a Chapter 7, a Chapter 13 case can span over the course of years and requires the debtor to make monthly payments toward their ongoing debts. And if those payments aren't made, the case will be dismissed. However, bankruptcy judges will typically give the survivors of a Chapter 13 debtor some options in resolving the bankruptcy.

In the majority of cases, the court will dismiss the bankruptcy. Most of the time, the estate won't have the resources to make the monthly payments required by the bankruptcy plan. In those cases, the family of the deceased debtor will let the court dismiss the case without a discharge. The end result is that the creditors of the estate will be able to reach those assets. In some cases, it is beneficial for the family to continue to make the payments to the court to complete the bankruptcy. 

Another option that is occasionally available is a hardship discharge. In limited cases, the court will agree to discharge the debtor's debts before the completion of all the mandatory bankruptcy plan payments. This option is only available when survivors can show the court the death of the debtor is an undue hardship. In some cases, where it is beneficial for the debtor's heirs to obtain a discharge, the court will allow the debtor's heirs to continue to make the bankruptcy plan payments to the court to complete the bankruptcy.

Speak with a Nevada Bankruptcy Attorney

If you have questions about the potential outcome of your bankruptcy case, it helps to discuss your options with an experienced Nevada bankruptcy attorney. With the right advice, you will be prepared for the bankruptcy process before you ever file your petition. Contact Vohwinkel Law today to schedule your free consultation with an experienced attorney.

About the Author

Rory Vohwinkel

Rory Vohwinkel began his legal career at one of Nevada's oldest and largest law firms, representing clients in commercial litigation and business transactions. Rory went on to serve as the sole in-house attorney for a national real estate investment and property management company. In 2009, Rory...

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