By Ryan C. Wood
Obviously a dead person cannot file for bankruptcy protection. What happens is a person who filed for bankruptcy dies before the bankruptcy case is closed? The answer depends upon whether the case is a Chapter 7, Chapter 11, Chapter 12 or Chapter 13 bankruptcy case.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy case the case can continue even though the bankruptcy filer has passed away. Once a bankruptcy estate is created the bankruptcy filer has no interest in property of the bankruptcy estate. Of course there are exemptions that protect/exempt your property from the bankruptcy estate so you can keep it. Whether the bankruptcy exemptions can protect all of your stuff depends upon what you own and its value. So at the time of the bankruptcy filer’s death in a Chapter 7 case only the exempted property will be available to probate or be distributed to beneficiaries. Federal Rule of Bankruptcy Procedure 1016 governs what happens upon the death of a bankruptcy filer. The bankruptcy lawyer that filed the case must inform the court and trustee of the death of the client and the case is administered, so far as possible, in the same manner as if the death had not taken place. So nothing really needs to be one if the debtor dies in a Chapter 7 case. At the same time, what if the meeting of the creditors has not been held? What if the debtor has not completed the second course and therefore is not eligible for a discharge?
Chapter 13, Chapter 11 or Chapter 12 Reorganization
If the bankruptcy case is a reorganization case then the case may be dismissed or if further administration is possible and is in the best interest of the parties, the reorganization case may proceed and concluded as if the bankruptcy filer had not passed away. Like in a Chapter 7 case the bankruptcy attorney that filed the case must inform the court and the trustee that the client has passed away.
In a Chapter 13 timing will make a difference. If the Chapter 13 plan has not been confirmed/approved by the Bankruptcy Court the case will most likely have to be dismissed. In a Chapter 13 the debtor usually funds the plan from income and makes Chapter 13 Plan payments over three to five years. So if the debtor dies in the middle of the confirmed Chapter 13 plan how can they complete the plan and obtain a discharge? The case will most likely be dismissed for nonpayment by the Chapter 13 Trustee.
In a Chapter 11 or Chapter 12 individual filing it is possible that a confirmed plan is completed and the debtor dies. Sometimes in these chapters the plan of reorganization is not funded by the monthly income of the debtor but from the sale of assets or other means. If the plan is already confirmed/approved by the Bankruptcy Court in theory a Chapter 11 or Chapter 12 reorganization filed by an individual could continue.
Adversary Proceedings in Chapter 7 Cases
An adversary proceeding is a lawsuit that is filed in the bankruptcy case to resolve an issue that is related to the bankruptcy filing. The most common is the object to the discharge of a debt or object to the debtor receiving a discharge at all.
An adversary proceeding would continue if the debtor passed away while it was ongoing. As mentioned above, if a Chapter 7 case can continue when the debtor passes away, then why can’t an adversary proceeding objecting to the discharge of the debtor continue?