If a Bankruptcy Debtor Dies

If a bankruptcy debtor dies, the bankruptcy proceedings may or may not cease depending on the type of bankruptcy at issue. In a Chapter 7 liquidation bankruptcy, the debtor's death will not affect the proceedings. However, if the bankruptcy is a reorganization under Chapters 11, 12 or 13, the case may be dismissed unless further administration is best for the interest of the parties.

Chapter 7

When the debtor in a Chapter 7 bankruptcy dies, the bankruptcy court will continue to administer as though the death had not occurred. The reason for this is that the appointed trustee can oversee the liquidation and the debtor is really not needed. The trustee can administer distribution to the waiting creditors.

Rule 1016 of the Federal Rules of Bankruptcy Procedure states:

Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.

The deceased debtor's interests are still considered in a Chapter 7 bankruptcy. A personal representative from the deceased's probate estate has the right to appear at any meeting between creditors.  Also, a deceased debtor may still be entitled to certain exemptions or even a final discharge.

Chapters 11, 12, and 13

In reorganization bankruptcies, the courts decide if the cases should proceed.  If a trustee can adequately administer the exempt assets for the beneficiaries after the debtor's death, the bankruptcy can continue.

However, dismissal is the most common ruling when a debtor dies in a reorganization bankruptcy. Alternatively, in some cases the bankruptcy can be converted to a Chapter 7 liquidation.

If a Chapter 13 bankruptcy is dismissed, the creditors may pursue a surviving spouse. In this case, the spouse may go to court to request a hardship discharge. If granted, the spouse will be exempt from continued pursuit by the creditors.

Post-Bankruptcy Probate

One of the benefits of a completed bankruptcy before probate is that most probate issues, including distribution, will have been resolved or simplified in the bankruptcy.

Find an Attorney

A Chapter 7 bankruptcy usually continues despite the death of the debtor. However, reorganization bankruptcies may be dismissed if the trustee cannot adequately proceed. In some cases, a reorganization bankruptcy can be converted to a liquidation after the debtor dies. Consult with an attorney experienced with bankruptcy and/or probate laws to determine the particular issues in your case.