Can A Bankruptcy Continue After Death of a Debtor?

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One of Benjamin Franklin’s most famous quotes is, “Certainty? In this world nothing is certain but death and taxes.”

With the certainty that is death, it is not surprising that occasionally, after a bankruptcy is filed, a Debtor will die.

However, the death of a Debtor does not automatically mean the death of his or her case.

The Bankruptcy Code permits the continuation of both Chapter 7 and Chapter 13 cases after a death.

Federal Rule of Bankruptcy Procedure 1016 deals with the issue of the death or incompetency of a Debtor.

Rule 1016 permits the continued administration of a Chapter 7 case “…in the same manner, so far as possible, as though the death or incompetency had not occurred.”

Likewise, in a Chapter 13 reorganization, the case can continue to be administered if it is in the best interest of the parties.

The ability to get a discharge of debts in a Chapter 7 can be a tremendous benefit to the deceased heirs of an estate, since they would be able to assume the assets of the deceased person without having to assume the debts.

In Chapter 13, the ability to continue with the case can be more difficult because of the fact that the payment of debts through the Plan will almost always have been based on the Debtor’s own income which will no longer be available.

However, sometimes a family member or members may wish to come forward to fund the Plan. This is particularly true where the bankruptcy may have been filed to address an arrearage on real estate or to stop a foreclosure/sheriff sale.

By continuing with the 13, the family member(s) may be able to pay out the arrearage to keep the house, or obtain refinancing to pay off the home loan.

Decisions on whether to continue on with a bankruptcy after death can be as much an issue of State inheritance laws as it will be an issue of bankruptcy itself.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

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