What Happens If Someone Dies Mid-Bankruptcy?

Death and Bankruptcy

Whether you are filing or you know a loved one has recently filed, there are several things you should know about death and bankruptcy.

For example, should you worry about what will happen to your family if you die before finishing the bankruptcy process?

What if a loved one dies mid-way through their bankruptcy?

How does bankruptcy affect your estate and do you need to think about leaving behind a financial mess for your family?

Understanding the bankruptcy process and knowing how death affects the discharge or non-discharge of debts can put your mind at ease.

Death and Chapter 7 Bankruptcy

Bankruptcy is a major decision. Whether you are filing alone or if your bankruptcy affects your family, you likely have a lot of questions.

One of the most common is “what will happen if tragedy strikes and I don’t live long enough to see the bankruptcy through to completion?”

The good news is you don’t need to worry if this happens. As unfortunate as your untimely passing would be, your family won’t suffer more because you filed for bankruptcy. In Chapter 7, as long as you were nearing the completion of your bankruptcy at the time of your death, the trustee can sell any non-exempt assets and discharge any remaining debt, as long as it qualifies. Essentially, the bankruptcy finishes without you.

Things are different if you die earlier on in the Chapter 7 process. If your passing occurs before you complete the financial management course or the meeting of creditors is held, your case is dismissed. This, too, is similar to what would happen if you lived and did not complete your course or attend the meeting of creditors.

In this case, your heirs must pay your unpaid debts out of your estate. This means your assets aren’t protected either. However, if your estate isn’t large enough to cover the debt, you don’t need to worry about it hurting your loved ones. In most cases, debts do not pass on to surviving relatives unless they were shared debts in life.

Your estate is responsible for your debts, not your loved ones.

Nobody can predict how long they will live and if you are completely healthy when you file for bankruptcy, chances are you won’t anticipate or plan for your death. But this is why it’s important to move the process along as quickly as possible in case there’s an emergency. The sooner things are completed the less risk there is to your estate.

Death and Chapter 13 Bankruptcy

A death that occurs mid-way through completing Chapter 13 bankruptcy is more complicated than Chapter 7.

As you might already know, Chapter 13 bankruptcy establishes a repayment plan. These plans last three to five years. And that extended time increases the likelihood of someone dying mid-way through their bankruptcy, just because we’re talking about years instead of months.

Chapter 13 is a long-term commitment and anything that causes you to not honor that commitment, including death, complicates your situation.

If you or a loved one dies before completing Chapter 13, the executor of the estate has two options:

1. They can request a dismissal of the bankruptcy case
2. They can continue making payments and complete the bankruptcy if the court approves such an arrangement

The second option tends to be best when the deceased is fairly close to the end of the bankruptcy repayment plan. It helps them tied up loose ends and protects the estate. However, there are situations in which it’s better to close the bankruptcy case. Unsecured debt rarely passes on to heirs, so there isn’t much incentive to pay off these debts once someone dies.

To learn more about the differences between these two types of bankruptcy, check out this information.

A Bankruptcy Attorney Helps You Plan and Helps Your Loved Ones Make the Best Decisions for Your Estate

Handling the estate of a loved one who filed for bankruptcy or making choices that ensure your family is protected if you die mid-bankruptcy is stressful. Everyone’s situation is different, so it’s important to speak to a bankruptcy attorney about your case.

If you’d like more information or you have questions about protecting your family when you file for bankruptcy, contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA) to schedule a consultation.