WHAT HAPPENS WHEN A DEBTOR DIES WHILE IN BANKRUPTCY?
Rule 1016 of the Federal Rules of Bankruptcy Procedure addresses what happens to a bankruptcy case when a debtor dies. In Chapter 7 bankruptcy, the case continues. The estate of a Chapter 7 debtor is administered and the case concluded as though the death had not occurred. When a bankruptcy case is filed, property is divided between the debtor and the bankruptcy estate. Property that the debtor is able to exempt remains property of the debtor. However the debtor no longer has an interest in nonexempt property which becomes property of the bankruptcy estate. This division of property is performed by the Chapter 7 Trustee, so little participation is required by the debtor in this process. As a result, in Chapter 7 bankruptcy, when the debtor dies the case can continue and the debtor’s estate can receive a discharge.
In a Chapter 13 bankruptcy case, whether or not the death of a debtor will continue or be dismissed is at the discretion of the bankruptcy court. In determining whether or not a Chapter 13 case will continues, the court will consider whether continuation of the case is possible under the circumstances, and whether it is in the best interests of the parties. In general, these cases are usually dismissed.