Written by attorney Richard John Cole III

Death During Bankruptcy

Bankruptcy Rule 1016 may govern what happens to your bankruptcy case should you die prior the completion of your bankruptcy. Should death occur, the bankruptcy court would have a few options to consider under Rule 1016, and the outcome would likely depend upon whether the case could proceed and be concluded in the same manner as if your death had not occurred, and what Chapter, or type, of bankruptcy you filed. If you die during a Chapter 7, then your bankruptcy would continue as before, and your probate estate would receive a discharge. Therefore, your heirs could keep your exempt assets. If you filed a Chapter 13, the court will have more flexibility since you will be making regular payments to the bankruptcy trustee during your bankruptcy. One, the court could simply dismiss your case. That means that your estate would not have to make any further payments, but you/your probate estate would not receive a discharge and therefore your creditors could attempt to collect against certain of your probate estate’s assets. Alternatively, the court might order further administration of your case if the court finds that is in the best interest of the parties and that further administration is in fact possible despite your death. Your probate estate could possibly make a lump sum payment or remain open until the final plan payment is made, depending upon how much more you had to repay. You could then receive a post-mortem discharge and your probate estate would not be liable on the debts. Third, your probate estate could seek a “hardship discharge" even if your plan payments were not complete, meaning you would receive the discharge post-mortem and your probate estate would not be open to your creditors, but no further plan payments or settlement would be necessary. In re Graham, 63 B.R. 95 (Bankr.E.D.Penn. 1986). But certain facts must be in place for a court to make such a finding. In all matters where you would normally appear, the personal representative of your estate would appear in your place. In re Lucio, 251 B.R. 705 (Bankr.W.D.Tex. 2000). Therefore, it would be imperative for your personal representative, and also for any estate planning counsel, to understand that you are in bankruptcy and are represented by counsel in that bankruptcy at this time. Therefore, should you die, they may wish to bankruptcy attorneys regarding their rights and obligations.

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