What Happens If Someone Dies During Bankruptcy?
When a debtor files for Chapter 7 or Chapter 13 bankruptcy, and then suddenly passes away, the bankruptcy case is not automatically closed and debts are not simply discharged....
When a debtor files for Chapter 7 or Chapter 13 bankruptcy, and then suddenly passes away, the bankruptcy case is not automatically closed and debts are not simply discharged. The surviving members of the debtors family must finish the bankruptcy process.
If the debtor is in Chapter 7 bankruptcy, this is the easier of the bankruptcy chapters because it pretty much carries on whether or not a debtor is still alive or has passed away. The trustee for the case will continue with business as usual until the debt is discharged. Since the assets have already been liquidated by the trustee, there is no need for anything further from the debtors heirs.
If the debtor is in Chapter 13 bankruptcy, it becomes a little more complicated since Chapter 13 bankruptcy involves payments and a person needs to be alive to make payments on the debt. A debtors family can continue making payments on the debtors behalf, but this can get complicated. Creditors will look to the debtor's estate to receive payment immediately. A debtor's heirs will not be held accountable for payment on their debt. However, if the debtor has substantial enough assets, they could be liquidated in order to repay some of the debt to the creditors, which could tie up the debtor's estate.
Nonetheless, if you are left in a situation where your loved one passes away and they were in the middle of a bankruptcy, never hesitate to contact a bankruptcy attorney for guidance. We at M.C. Law Group are here to help answer all your questions.