Should You Continue A Chapter 13 Bankruptcy Case After The Debtor Dies?
When a person passes away while in the midst of an active chapter 13 bankruptcy case, more often than not, the court will dismiss the case, leaving the person's family members and creditors to fight over any available assets. In some cases, though, the court may offer the option to continue the case and let the decedent's estate make the payments as if the person was still living. Here are a couple of things to consider to determine if this is the best option in your situation.
What Type of Debt is the Case Addressing?
To help you with your decision making, the first thing you should do is look at the decedent's bankruptcy schedules to determine the type of debt they were paying through the program. If the person had primarily unsecured debt, such as credit cards and personal loans, you are probably better off asking the court to switch the case over to a chapter 7 bankruptcy. In a chapter 7, all debts are wiped out, which means you won't have to use any of the assets in the person's estate to pay creditors.
On the other hand, if the person has any type of secured debt on their schedules, you need to determine what you want to do with the asset the debt is attached to. For instance, if the person is paying off a car note via a chapter 13 bankruptcy, you must decide whether to surrender the vehicle to the lender or keep it. It may be best to continue the chapter 13 case if you decide to keep the vehicle but cannot obtain enough money to make a lump sum payment. Keeping the chapter 13 case open will prevent the creditor from repossessing the vehicle while it's being paid off.
How Much Debt is Owed?
Another thing to consider is the amount of money the debtor owes. If the amount of assets left behind by the debtor significantly outpace the amount the person owes on their debts, then it may be easier just to have the case dismissed and negotiate repayment directly with the creditors. You may be able to get creditors to accept an amount that is significantly less than what the debtor would've paid through the program and others may forgive the debt completely, which means less money out of pocket for inheritors.
On the other hand, if the amount of debts owed would completely devour any money or assets left by the debtor, then continuing the case may be the smarter move. Many times, once the case is completed, the court will discharge any remaining eligible debt, meaning the decedent's estate won't have to pay any leftover balance to the creditor. This could help ensure inheritors keep important assets, such as homes or jewelry.
For more help with a bankruptcy case where the debtor has died or more information about bankruptcy in general, contact a local bankruptcy attorney.