What Happens if a Person Dies During Bankruptcy Proceedings?

What Happens if a Person Dies During Bankruptcy Proceedings?

A bankruptcy lawyer

Bankruptcy filings are more common than most people think. Bankruptcy filings hit an all-time peak in the USA in 2005 when over 2 million filed for them. Since then, the number has decreased considerably. According to the United States Courts, bankruptcy filings decreased by more than 29.7 percent from 2019 to 2020. The figures show that only 544,463 filings occurred compared to 774,940 in 2019.

Given the high number of bankruptcy filings annually, rare instances can occur. Sometimes, a debtor might pass away while their bankruptcy proceedings are ongoing. Such instances are uncommon. However, they do happen. It raises the question: what happens if a person dies during bankruptcy?

The answer depends on various factors. For starters, the most crucial variable is the bankruptcy chapter.

What Happens if a Person Dies While Filing Chapter 7 Bankruptcy?

In a Chapter 7 bankruptcy, things don’t significantly change if the debtor dies. That’s because the Chapter 7 bankruptcy revolves around liquidating assets and discharging debts. If a debtor dies, the court-appointed bankruptcy trustee will liquidate the debtor’s non-exempt assets and use the proceeds to pay the creditors. Once the payment completes, the bankruptcy court discharges the debt. It doesn’t matter whether the debtor is still alive or not.

What Happens if a Person Dies During Chapter 13 Bankruptcy?

Chapter 13 bankruptcies significantly differ from Chapter 7 bankruptcies. Chapter 13 bankruptcies require debtors to repay their creditors. Usually, a court-appointed trustee will create a three-to-five-year repayment plan that you’ll have to follow. Hence, a debtor’s debt can throw a wrench in the plans.

In some cases, if a debtor dies, the case is dismissed. Those handling the deceased’s estate have to decide whether they want to continue with the repayment plan. Otherwise, they can request the court to alter the plan.

Courts prioritize debt repayment in Chapter 13 bankruptcies. However, they do offer alternatives to those handling the deceased’s estate. Courts allow for case dismissals. Dismissal means the estate becomes liable to creditors. The deceased’s estate pays the creditors. Loved ones only receive an inheritance if there’s anything left after debt repayment.

Loved ones can also seek a hardship discharge from courts. The hardship discharge eliminates all dischargeable debts. Moreover, it prevents creditors from seeking repayment from the estate. In addition, the deceased’s loved ones can also request the bankruptcy court to convert the case into a Chapter 7 bankruptcy. Once the bankruptcy converts, you can seek a discharge.

Sometimes, courts will also order the estates to continue with the repayment plan. In such situations, loved ones have no option but to continue paying the deceased’s debts from the estate.

A bankruptcy attorney

Seek Legal Counsel from an Experienced Bankruptcy Attorney

Filing for bankruptcy can be challenging. However, hiring a bankruptcy lawyer can alleviate your stress. A professional bankruptcy law firm Kingston will help you navigate the process, making your life less strenuous. If you’re seeking a bankruptcy legal expert, consider the law office of Brian Juran. Brian Juran is a leading legal mind and an excellent debt relief lawyer who can help you through these trying times. Visit their website today for more information. Alternatively, get in touch with the law office of Brian Juran to get started.

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