What You Need to Know About Death and Bankruptcy
The Bankruptcy Case Does Not Automatically End
If a debtor dies during bankruptcy, the bankruptcy case does not automatically end. Remember, those debts are still owed and creditors could come after assets of the deceased debtor without a bankruptcy discharge. For example, if the debtor owned property, assets or cash, they could go after those assets with the approval of the court. Only the automatic stay of bankruptcy prevents creditors from pursuing a debtor (alive or dead) for payment.
Death and Chapter 7 Bankruptcy
If a debtor dies during Chapter 7 bankruptcy
and before they have attended the First Meeting of Creditors, someone else can testify on behalf of the deceased debtor. If no one testifies on behalf of the deceased debtor during Chapter 7 bankruptcy, the case may be dismissed. A bankruptcy dismissal could mean that those debts are still owed.
Death and Chapter 13 Bankruptcy
In the case of a Chapter 13 bankruptcy
, the bankruptcy court will determine if the bankruptcy repayment plan can be completed without the deceased debtor. The bankruptcy court may decide to convert the Chapter 13 bankruptcy case into a Chapter 7 bankruptcy or to dismiss the case.
The Deceased Debtor's Spouse May be Pursued by Creditors
If the bankruptcy case is dismissed, the deceased debtor's spouse may be pursued by creditors for payment, even if they are not legally entitled to it. There have been many cases in which creditors attempt to exploit the grief of family members to secure payment for the debts of the deceased. If you are the spouse of a deceased Chapter 13 bankruptcy debtor, you may want to request a "hardship discharge" of your spouse's debt. That way, creditors will not be able to harass you for payment.