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When bankruptcy debtors die

Many in Manchester may joke that their debt problems may drive them to an early grave. While no one is suggesting that money troubles can actually cause someone’s death, debt is a problem that many Americans deal with their entire lives. The online publication MarketWatch reports that one of every five Americans will die in debt, leaving their estates to handle many of their liabilities.

Lifelong debt struggles may also be among the reasons why a large number of people in the U.S. also choose to seek bankruptcy protection (with 819,760 filing in 2015 alone, according to The American Bankruptcy Institute). This may prompt the question of what happens if one dies while in bankruptcy.

The answer may depend on what type of bankruptcy he or she was seeking. In a Chapter 7 case, the bankruptcy trustee is primarily responsible for the administration of the case, including liquidating property and assets and seeing the case through to discharge. Thus, a debtor’s death may have little impact on such a case.

In a Chapter 13 case, however, the debtor is required to follow a repayment schedule in order to avoid the case being dismissed. If he or she dies, those payments must continue to be made from the assets of his or her estate. The executor of the estate is typically the one tasked with making sure that this happens. If, however, the estate’s assets are not enough to meet the monthly payments, an executor has a couple of options:

  •          Seek to covert the case to a Chapter 7.
  •          Ask for a hardship discharge.
  •          Allow the case to be dismissed.

One should be aware, however, that allowing the case to be dismissed could mean that liability for the bankruptcy debts could fall back on the estate. 

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