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Death of a Debtor in Bankruptcy

Death of a Debtor in Bankruptcy

As if the process of filing bankruptcy and going through the bankruptcy procedures aren't stressful enough for some debtors, circumstances can arise if there is a death of a debtor in an active bankruptcy case. Questions arise at that point as to what procedures need to be filed, and much of it depends on which stage the bankruptcy is in at the time of the death of the debtor.

Federal Bankruptcy Rule 1016 provides that "death or incompetency of the debtor shall not abate a liquidation case under Chapter 7 of the Code." The rule thus states on its face that a Chapter 7 can, and most likely should, proceed even after the death of a debtor. This makes sense conceptually when you realize that the bankruptcy estate has already been created and can be completed with or without the debtor.

A major issue, though, is whether the debtor has completed certain post-filing requirements prior to his or her death. The two most prevalent for our purposes are the Meeting of Creditors requirement of section 343, and the requirement under section 727 that the debtor complete a course of personal financial management prior to discharge. If the decedent has not completed these requirements, then a motion to the court exempting the debtor from both will be required. There, the debtor's attorney will need to persuade the court that proceeding with the Chapter 7 is possible and that the course and meeting are now impossible due to the death of the debtor. This is the case regardless of whether it is a joint or individually filed case. Issues might also arise in a joint case if the decedent-debtor left behind a sizable inheritance to be inherited by the surviving debtor.

This is an issue that is not black letter law in the bankruptcy code and certainly involves a good deal of research particular to the district that the case was originally filed in. There may be certain procedures that the district follows, or opinions by judges in that district that outline their thoughts and preferences on the matter. Cooperating and informing the interim throughout the process is also probably a good idea. Of course, if these unfortunate circumstances should happen in your bankruptcy case, it is best to consult an experienced bankruptcy attorney.

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