The death of a spouse can be both emotionally and financially devastating. It can also affect your ability to complete your Chapter 13 repayment plan. In general, if your spouse dies during your Chapter 13 bankruptcy and you don't want to dismiss the case, your options include:
- continuing your plan without making any changes
- modifying your plan to reduce your payment
- converting your case to Chapter 7, or
- requesting a hardship discharge.
Continue Your Chapter 13 Plan
If your spouse dies, your case does not automatically get dismissed. When deciding whether a Chapter 13 case is still feasible, bankruptcy courts consider whether it is possible and in the best interest of all parties to continue the bankruptcy.
If you and your family still have the means to make your monthly payments, complete your plan, and obtain a discharge, the court will typically allow you to continue your Chapter 13 as if nothing has changed. This is usually the case if you have a significant amount of debt and the deceased spouse did not have enough income to affect your ability to make your monthly plan payments.
Modify Your Chapter 13 Plan
If you relied on your deceased spouse’s income to afford your monthly plan payments, you may be able to file a motion to modify your plan and reduce your payment amount. This is usually an option if you can still afford to make reduced plan payments and it is possible to lower your payment. But keep in mind that if your plan was only paying back mandatory priority debts, you may not be able to reduce your payment amount.
Request a Hardship Discharge
If your spouse dies and you can no longer afford to be in a Chapter 13 bankruptcy, you may also qualify to receive a hardship discharge. A hardship discharge can be granted prior to completion of a Chapter 13 plan if:
- the failure to complete the repayment plan is not your fault
- unsecured creditors have already received as much as they would have been entitled to in a Chapter 7 bankruptcy, and
- modifying the plan is not feasible.
For more information, see The Chapter 13 Hardship Discharge.
Convert Your Case to Chapter 7
If you can’t afford your Chapter 13 payments, you can also convert your bankruptcy to a Chapter 7 case. Whether you have to pass the means test to qualify for a Chapter 7 bankruptcy that is converted from a Chapter 13 depends on the rules in your jurisdiction. However, you must still show that your financial circumstances changed in such a way that you can no longer afford to be in a Chapter 13 bankruptcy.
But keep in mind that if you have any nonexempt assets, they can be sold by the Chapter 7 trustee to pay back your unsecured creditors. As a result, depending on the amount of property you own, it may not be in your best interest to convert your case.
To learn more, see Converting a Bankruptcy Case from Chapter 13 to Chapter 7.