The laws of bankruptcy are relatively complex, but one thing’s for sure: Once a bankruptcy has been filed, the court or trustee in charge of the process is going to want to see it through in its entirety. Therefore, if a person happens to pass away in the middle of his bankruptcy proceedings, then some specific steps will need to be taken to properly bring the matter to a close. Stephen Graves of San Antonio’s Graves Law Firm is an attorney with more than 20 years of bankruptcy experience under his belt, and he thinks that it’s important for people to understand what happens if a loved one in bankruptcy passes away.
When a person files for a Chapter 13 bankruptcy, then his assets (at least to an extent) are subject to creditor claims. Unlike a Chapter 7 liquidation, a Chapter 13 involves setting up a three- to five-year payment plan for the disbursement of creditor debts. If a person dies while that payment plan is still underway, then his death does not simply cancel the plan; rather, his heirs will have to work with the bankruptcy trustee, as well as his attorney, to continue to make payments in order to fulfill the obligations that were set forth in the plan. In some cases, the scenario could cause the Chapter 13 bankruptcy to get converted to a Chapter 7 liquidation – in which case, any applicable mortgage lenders might choose to take action by foreclosing on the leftover property in question. The end result could therefore be quite sticky for the bankrupt individual’s heirs, which is why it’s imperative that anyone in such a scenario consult with an experienced bankruptcy attorney to evaluate his options.
Furthermore, if a bankrupt individual passes away but leaves the majority of his assets to a few specific heirs, then those heirs might be out of luck as far as collecting goes. According to Graves, a will cannot trump creditor claims in an ongoing bankruptcy. Therefore, a person cannot successfully avoid the claims of his creditors by passing away and leaving most of his assets and property to a few select individuals. Rather, any assets that survive the deceased party will need to be paid to the bankruptcy trustee so that he may allocate them among creditors accordingly. Of course, anything left over then becomes the property of the heirs listed in the deceased’s will.
Bankruptcy is certainly an intricate enough process to deal with on its own, and the death of a debtor is something that only serves to complicate matters. If you happen to find yourself in a scenario where a loved one passes away in bankruptcy, then you’d be wise to consult with an attorney to see what rights you might have as an heir. After all, dealing with the death of a family member is difficult enough, so you deserve to have someone educated on your side to at least help you tackle the financial and legal aftermath.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
