Personal bankruptcies vary significantly from case to case depending on the specific circumstances of each person’s finances. The various personal matters such as whether the debtor (the person in debt who files for bankruptcy) is employed or not, the amount of debt to income or assets, as well as the amount of secured debt (such as cars or mortgaged homes), can all play a role in how a bankruptcy case unfolds.

The Federal bankruptcy rules even have a rule covering the death of the debtor during a bankruptcy. Rule 1016 discusses what should be done in the event of the death of a debtor in Chapter 7 or Chapter 13 cases.

Chapter 7

In a Chapter 7 bankruptcy case, if the debtor dies (or becomes legally incompetent) during the proceedings, the case will continue under the administration of the debtor’s estate. Chapter 7 is a liquidation proceeding, meaning that the court will look to sell much of the debtor’s property in order to settle outstanding debts to creditors (the individuals or institutions who are owed money, such as banks).

Chapter 13

As for Chapter 13, the court has two options. As in Chapter 7, the court could decide to continue the case “if further administration is possible and in the best interest of the parties” according to the rule. The court is then to continue the case as if the death never occurred and work with the creditors and the debtor’s estate (which is often administered by a family member or a financial advisor) to settle the case and complete the payment plan.

Alternatively, a Chapter 13 case may also be dismissed in the event of the debtor’s death.

What if it is the Creditor Who Dies?

If a creditor is a “real person” that is a human being as opposed to a company, it is quite possible that the creditor may die before receiving assets or cash owed to him in the bankruptcy proceeding.

In such a situation, the estate of the creditor may wish to pursue a claim for the unclaimed funds that the deceased creditor is owed.

To do so a creditor’s estate must complete two steps:

First, the estate must establish a right to the funds (proving that the funds from the bankruptcy case should be given to the estate to satisfy the debt) by completing and filing a petition with the court,

Second, the estate administrator must provide evidence that the estate is authorized to obtain the funds from the deceased creditor. The estate must provide evidence showing proof of the identity of the owner of record, proof of personal identity of the administrator, certified copies of probate documents establishing the administrator’s right to act on behalf of the estate, and complete a vendor information form so the court will have the administrator’s contact information on file.

Contact Massachusetts Bankruptcy Attorney for Additional Questions

Bankruptcy law is very complex and the outcomes of each case are extremely important to the debtor and creditors involved in each case. To answer more questions about bankruptcy law, please contact the Law Office of Brian R. Lewis.