Can Bankruptcy Survive the Death of the Debtor?

by Stephen Kass on October 4, 2012

There are instances where a debtor files for bankruptcy, and subsequently dies before the bankruptcy case is settled.  The debtor is the one filing for bankruptcy and in need of a fresh start, so it may be assumed that after the debtor’s death the case would be thrown out.

The death of a debtor does not automatically mean his or her case is over.  The Bankruptcy Code permits cases to continue after a debtor’s death in both Chapter 7 and Chapter 13 cases.

Rule 1016 of the Federal Rules of Bankruptcy Procedures governs the rules of death or incompetency during a bankruptcy proceeding.    Rule 1016 permits bankruptcy to continue following the death of a debtor.  The Rule states, “Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.”

Similarly, in a Chapter 13 case, bankruptcy can continue after a Debtor’s death if the continuation is in the best interest of the parties.

The debtor is gone, but the continuation of the bankruptcy is significant to those the debtor leaves behind.  If the bankruptcy is permitted to continue, and the debtor’s debt is discharged in a Chapter 7 case, the debtor’s beneficiaries are permitted to take the debtor’s assets without having to account for all the debtor’s debt.

In a Chapter 13 case, the debtor’s heirs may not be able to receive the assets so seamlessly.  In a Chapter 13 case, debt is not necessarily discharged.  Instead, the debtor works with the creditor to create a repayment plan.  The repayment plan tends to be funded by the debtor’s income, and is based on what the debtor can afford after his or her expenditures.  Because the debtor is dead, he or she no longer has income to fund the plan.

It may be possible for a family member to fund the plan if they are willing and able.  A loved one may be particularly willing to fund a plan when the bankruptcy was filed to address a real estate issue or stop a foreclosure.

Whether a bankruptcy continues can be a matter of inheritance laws, which vary from state to state.  It is important to contact an experienced attorney to help determine the best course of action.

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Overview of Automatic Stay

by Stephen Kass on September 11, 2012

The automatic stay comes into effect upon filing for bankruptcy. It stops most creditors from pursuing their debts. Actions that are stopped by automatic stay include any collection actions, lawsuits that began prior to bankruptcy, including actions against debtor’s property, creditor’s pre-petition judgments such as liens and foreclosures, and other acts taken against the debtors or his property.

Some debts and certain kinds of actions are exempt from automatic stay and will not be effected by a debtor filing for bankruptcy; those actions include evictions of non residential property where the lease has been terminated prior to commencement of bankruptcy, criminal actions, actions concerning alimony, certain actions taken by taxing authorities, any education loans, and various others.

Obtaining Relief from Automatic Stay

Some of the creditors that seek relief include secured creditors, litigation parties that want litigation to continue, and contract parties that want to terminate a contract upon being notified of debtor filing for bankruptcy, and plaintiffs who want to name a debtor in a lawsuits for insurance policy reasons.

In order to obtain relief from automatic stay creditors have to file a motion. The motion for relief must be made after notice of bankruptcy filing by the debtor. Subsequently, not more than 30 days after the motion is filed, a court will hold a hearing, or two hearings, depending on the jurisdiction, to determine whether or not to grant relief.

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Tax Offer in Compromise

September 10, 2012

What is an Offer-in-compromise (“OIC”)? An offer-in-compromise is an out of court agreement between a taxpayer and the taxing authority that resolves the taxpayer’s tax liability. Taxing authorities have the ability to settle, or compromise, tax liabilities by accepting less than full payment under certain circumstances. Under what circumstances can an OIC be made? The […]

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Purse Snatching Can Lead to Bankruptcy

September 8, 2012

In March 2012, reported a thief swiped a $25,000 crocodile handbag from the Ralph Lauren boutique on the upper East Side in New York, NY.  The thief wore a tan three-quarter-length coat with a maroon scarf, black pants and black boots when she left Madison Ave. at E. 72nd St. with the bag draped […]

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Real Property Transfers and Bankruptcy Tax Exemptions

September 6, 2012

Section 1146(c) of the Bankruptcy Code states that when real property is transferred under a plan confirmed under Chapter 11, the transaction is tax exempt. Congress enacted this provision because a reduction in tax obligations assists in producing successful reorganization plans by encouraging debtors to dispose of unnecessary assets, and by increasing the amount of […]

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Public Pension Fund Files Bankruptcy

September 5, 2012

On April 17, 2012, the Northern Mariana Islands Retirement Fund (Fund), a United States public pension fund, filed for Chapter 11 bankruptcy. The Fund provides retirement benefits to government employees of the Commonwealth of the Northern Mariana Islands (Commonwealth).  The Commonwealth is a U.S. territory.  The Fund listed $256 million in assets and $1 billion […]

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Co-Debtor Stays

September 3, 2012

The co-debtor stay automatically prohibits any act or civil action to collect any consumer debt from an individual liable with the Chapter 13 Debtor, or against an individual who has secured the debt. Any act to collect from a co-debtor can even include actions such as placing a negative mark in the co-debtor’s credit report. […]

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Difference Between Chapter 7 and Chapter 13

September 2, 2012

Under Chapter 7, all the Debtor’s non-exempt property becomes property of the trustee, the trustee then liquidates that property and distributes the proceeds to creditors. The Debtor receives a discharge, which usually results in the discharge of all credit cards and medical bills. Under Chapter 13, the Debtor remains in possession of ALL their property […]

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Bankruptcy Discharge Objections

September 1, 2012

The bankruptcy circuits were split as to whether the protection afforded to a debtor concerning time limits for creditors to object to a bankruptcy discharge may be forfeited, if a debtor waits too long a period of time to assert that an objection was not made within the stated time limits. In January, the Supreme […]

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Solutions for the Bankrupt Taxpayer

August 28, 2012

I. Tax Collection Fundamentals: Non-Bankruptcy Alternatives 1) How does an assessment come into existence? a. Tax Return Filed.  When a tax return is filed showing a tax due, the IRS assesses that tax. [IRS §6201(a)]. b. Deficiency Assessment.  A deficiency is defined under IRC §6211 as being the actual or correct tax over (or less) the tax shown on […]

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