What happens if a person passes away while in an active Bankruptcy?
WHAT HAPPENS IF A
PERSON PASSES WHILE IN BANKRUPTCY?
Facing bankruptcy is undoubtedly a challenging situation, and contemplating
what would happen if a person were to pass away before the bankruptcy process
concludes may not be a pleasant thought. However, understanding the legal
implications in such scenarios is crucial.
A DECEASED DEBTOR IN CHAPTER 7 BANKRUPTCY:
If a Debtor passes away while in an active Chapter 7, the bankruptcy can still proceed as planned. After filing the trustee already has control over the estate and assets (if any).
Assuming there are no objections from the creditors during this process, the
bankruptcy case generally proceeds as normal to discharge (completion of case). The
debtor's heirs do not need not worry or be held responsible for any remaining unpaid
debt. Chapter 7 offers a relatively straightforward path forward in the face
of a debtor's demise.
DECEASED DEBTOR & CHAPTER 13 BANKRUPTCY:
A Chapter 13 bankruptcy case operates differently as it usually involves a court-approved payment
plan that spans 3 to 5 years for settling outstanding debts. This type of
bankruptcy allows the debtor to retain their property, adding a layer of
complexity when a debtor passes away. In cases with only one Debtor, the court may choose to
dismiss the bankruptcy case. However, the heirs can opt to step in and continue
making payments until the discharge of the case. What motivates the heirs to do so? Well,
it often depends on the assets left behind by the deceased. If one of two joint debtors passes away, the surviving debtor can opt to continue the case. In either scenario, its paramount at the heirs or surviving debtor contact the Attorney to further discuss.
FURTHER REGARDING A DECEASED SPOUSE IN CHAPTER 13:
In instances where a couple embarks on a joint Chapter 13 bankruptcy journey and one spouse passes away before the discharge, the surviving spouse may have the opportunity to apply for lower payments based on their individual circumstances. This also applies to a surviving non-filing spouse, especially if a mortgage or vehicle they wish to keep was involved in the case.
WHAT HAPPENS WITH A MORTGAGE DEBT?
If the deceased debtor had a mortgage, the lender will typically make efforts to transfer
the mortgage to the heirs. If the heirs decide to keep the property, they must
continue making the Chapter 13 payments to prevent the house from going into
foreclosure. Alternatively, they can explore refinancing options to settle the
mortgage debt with the lender.
WHAT HAPPENS WITH UNSECURED DEBTS?
For unsecured debts such
as credit cards or medical bills, it is essential to note that the heirs
themselves are not held liable for these obligations. Heirs might choose to continue making the bankruptcy payments,
ultimately providing them with an opportunity to deal with this debt through the Debtor's Chapter 13.
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