Spouse Dies during Chapter 13

A death of a loved can be devastating and frightening. If your spouse dies during a Chapter 13 bankruptcy, you may be unsure of how the death affects the proceedings. Depending on the situation, the Chapter 13 repayment plan may continue after the death of the debtor. Alternatively, the family may choose to convert a Chapter 13 bankruptcy to a Chapter 7 bankruptcy. In other scenarios, a spouse may qualify for a hardship discharge.

Continuation of the Repayment Plan

Depending on the financial situation of the spouse and other family members, the bankruptcy court may allow the Chapter 13 bankruptcy to continue. The court examines two factors when deciding whether to keep the bankruptcy open. First, the court must be satisfied that further administration of the plan is possible. The court will take into account the income of the spouse and whether it is feasible for the spouse to make monthly payments for the life of the plan. The second factor that the court weighs is whether the continuation of the Chapter 13 repayment plan is in the best interest of the parties. If the debt is significant and the plan is near completion, this should be easy for the family to satisfy. If the continuation of the repayment plan is possible, then the debtor's estate receives a discharge following the completion of the plan.

Converting the Plan to a Chapter 7 Bankruptcy

Another option following a death and Chapter 13 bankruptcy is to convert the bankruptcy to a Chapter 7. Chapter 7 is a liquidation bankruptcy, and involves the bankruptcy trustee selling the debtor's non-exempt assets to repay the creditors. If the repayment plan cannot be completed, but the other spouse still wants to proceed in the bankruptcy, converting to Chapter 7 may be a good option. If there are assets that the debtor's spouse would like to keep, however, converting to Chapter 7 may not be the best option.

Hardship Discharge

The spouse and debtor's family may also qualify for a hardship discharge following a death during Chapter 13 bankruptcy. The family must satisfy three factors for the bankruptcy court to grant a hardship discharge. The family's inability to complete the Chapter 13 payments must be due to circumstances for which the debtor should not reasonably and fairly be held accountable. Death of a debtor certainly satisfies this factor. The family must be unable to modify the repayment plan in any way and continue to make payments. Here, a family may be able to show that continuation of the plan is impossible because the deceased debtor was the primary breadwinner, or there are no assets to sell or reasonable modifications to be made to continue the plan. Finally, unsecured creditors must receive at least as much in Chapter 13 distributions as if the debtor had filed for Chapter 7. If all factors are met, the family may qualify for a hardship discharge from the court.

Getting Legal Help

If your spouse has died after filing for Chapter 13 bankruptcy, speak with an experienced bankruptcy attorney as soon as possible. An attorney can explain your options to you and help you move forward.