What Happens If a Bankruptcy Debtor Dies?

Even though it doesn't happen often, debtors sometimes die while a Chapter 7 or Chapter 13 bankruptcy case is still pending. Read on to find out how survivors are affected and what options are available.

How Death Affects Debts

When people die, their debts aren't passed on to their heirs unless they are joint debts. However, it is still essential to determine what will happen to bankruptcy after the debtor's death.

Creditors can always look to the deceased debtor's estate and property to satisfy the debtor's obligations, which will decrease the amount received by heirs. Find out more about estates and the probate process.

When a Debtor Dies During Bankruptcy Chapters 7 and 13

A bankruptcy case isn't automatically dismissed if the debtor dies. The outcome will depend on whether it's a Chapter 7 or Chapter 13 case.

Death During Chapter 7 Bankruptcy

Chapter 7, or "liquidation" bankruptcy, is usually unaffected by the debtor's death. Once it's underway, the debtor isn't necessary to administer the case, so the Chapter 7 trustee responsible for selling the property and paying creditors will continue as if the death never happened. The result is usually a bankruptcy discharge—the order that wipes out qualifying debt like credit card balances, medical bills, and personal loans.

Death During Chapter 13 Bankruptcy

The result in Chapter 13 bankruptcy differs because the debtor's participation in the case is necessary. A Chapter 13 debtor must make monthly payments to the bankruptcy trustee through a repayment plan for three to five years before the case is completed. The court will dismiss the case if the debtor doesn't make payments.

In Chapter 13, the survivors or the administrator of the deceased debtor's estate must decide how to proceed and advise the court of the chosen course of action. The following options are usually available to the survivors—however, the court will consider the best interests of all affected by the case (parties) when deciding what to do. Learn more about Chapter 13 Bankruptcy.

Dismiss the case. The first and most common option is a case dismissal. If the debtor dies during Chapter 13 bankruptcy, the survivors might let the case get dismissed. The deceased debtor will not receive a discharge, and the estate will likely remain liable to creditors.

Ask for a hardship discharge. The court can grant a hardship discharge before completing all required Chapter 13 plan payments. However, the unsecured creditors must receive the same amount as in a Chapter 7 case—the value of any property that couldn't be protected with a bankruptcy exemption.

Survivors can petition the court for a hardship discharge due to the debtor's death. If granted, all dischargeable debts will be wiped out, and creditors cannot come after the deceased debtor's estate.

Convert to Chapter 7. Like a hardship discharge, survivors can ask the court to convert to Chapter 7 to receive a discharge. However, some courts do not allow this, and the court in which the case was filed will decide whether it will be successful.

Continue Chapter 13. Courts also have the discretion to proceed with and conclude the Chapter 13 as if the death had not happened. The court might order this if it is possible and in the best interest of all the parties.