I get asked the question, “What if I die before my case is completed?” You might be thinking to yourself why would it matter at all what happens as it won’t affect the deceased person. Well, these clients have often worried about these bills so long that they don’t want their heirs or loved ones having to do the same with their debt after they die. But in reality it really is a good question as a debtor’s death does have consequences for his or her survivors. Fortunately, absent a co-signing with the heir, when people die, their debts are not passed on to their heirs. The creditor, however, can still go after the property of the deceased to satisfy the debt. This can affect how much property the heirs of the deceased will receive.The answer though ultimately depends on whether they are filing a Chapter 7 or Chapter 13 Bankruptcy case.Death Before Chapter 7 DischargeIf the Debtor has filed a Chapter 7 bankruptcy, the death of the Debtor usually has no effect on their Discharge, assuming they have appeared at the 341 meeting of creditors, held approximately 30 days from the filing of the case, and have already completed their Course in Financial Management. Chapter 7 bankruptcies are liquidations and the trustee is in charge of administering the bankruptcy estate and determining if there are any assets to pay creditors. Once the 341 hearing is held, the debtor is not really necessary for administration of the case from that point forward which is usually only 2 to 3 months longer. All documents that are filed in a bankruptcy petition have to be filed under oath, thus requiring the debtor to be present and alive. Most if not all documents filed in a Chapter 7 are filed at the beginning of the case. Usually nothing else is required to be filed after the 341 meeting and the trustee will just continue to administer the case as if the death never happened, usually resulting in a discharge.Death Before Chapter 13DischargeA Chapter 13 bankruptcy is a different story because participation of the debtor in the case is necessary. In a Chapter 13 case, the debtor has to make monthly payments to the bankruptcy trustee for 3 to 5 years before the case is completed. Once the debtor dies, if no further payments are made to the Trustee, then the Trustee will file with Court to have the case dismissed. However, if the payments continue to be made by the heirs then the case proceeds toward discharge. The caveat being before you can receive a discharge in a Chapter 13 case, the debtor has to file a document, which has to be filed under oath and thus requires a live person. Fortunately, if the heirs want to continue paying the case they simply need to file proof that they have been appointed as either the executor/executrix or administrator/administratrix of the deceased’s estate and sign the document in that capacity for the discharge order to be signed by the Judge.As you can see it is important to have an attorney who will carefully navigate you through the Bankruptcy process. At Bond & Botes we treat every case with care and are very diligent with our clients to make sure their case gets discharged. Please call one of ourconveniently located officesto set up a private consultation with one of ourexperienced attorneys.We will analyze your situation and help you make the best decision possible to help you navigate your financial problems.The post What If a Debtor Dies Before They Receive Their Discharge? appeared first on Bond & Botes.
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FAQs
Once the debtor dies, if no further payments are made to the Trustee, then the Trustee will file with Court to have the case dismissed. However, if the payments continue to be made by the heirs then the case proceeds toward discharge.
What happens to debt when the debtor dies? ›
When someone dies, their debts are generally paid out of the money or property left in the estate. If the estate can't pay it and there's no one who shared responsibility for the debt, it may go unpaid. Generally, when a person dies, their money and property will go towards repaying their debt.
Can debt collectors go after the family of deceased? ›
If you are the executor or administrator of the deceased person's estate, debt collectors can contact you to discuss the deceased person's debts. Debt collectors are not allowed to say or hint that you are responsible for paying the debts with your own money.
What debts are not forgiven at death? ›
Additional examples of unsecured debt include medical debt and most types of credit card debt. If you die with unsecured debt, repayment becomes the responsibility of your estate.
How long can debt be collected after death? ›
In California, creditors only have one year to collect on a debt. It doesn't matter if the surviving spouse didn't take out a line of credit or lease a car, if their name is on it, it's a community asset and if there's still debt on this asset, it's known as a community debt.
Who pays the loan if the borrower dies? ›
If the legal heir of the borrower willingly becomes the co-applicant and agrees to repay the loan, then the bank gets the amount back from the legal heir. However, banks cannot force the heir to repay the amount.
What happens if the principal debtor dies? ›
Death of principal debtor
In case of the death of the principal debtor, any suit against him would be void ab initio. However, the surety would not be discharged of his liability to pay the amount.
What happens if you tell a debt collector you're dead? ›
Your personal representative must notify your creditors about your death. Creditors then have 30 or 90 days, depending on the method of notification, to file a claim. Generally, failing to file extinguishes the debt forever. However, a creditor who did not receive notice can file until the estate closes.
Am I obligated to pay my deceased parent's debt? ›
You are not responsible for your parents' debt. This is true regardless of whether you inherit assets under their estate. However, a parent's estate must settle any debts before you can inherit. And children often share financial responsibilities with aging parents, often medical and housing costs.
Can a debt be inherited by heirs? ›
Most debt isn't inherited by someone else — instead, it passes to the estate. During probate, the executor of the estate typically pays off debts using the estate's assets first, and then they distribute leftover funds according to the deceased's will.
The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units ...
What debt is unforgivable? ›
Regardless of whether you're seeking out a Chapter 7 or a Chapter 13 bankruptcy, not all debt is eligible for discharge. For example, taxes, spousal support, child support, alimony and government-backed student loans can't be discharged in bankruptcy.
Do children inherit their parents' debt? ›
In general, you will not inherit any individual debt incurred by your parents or other family members. Deep sigh of relief. At the time of their passing, your parent's estate will be used to pay off or settle any outstanding debts.
Are family members responsible for deceased debt? ›
If the deceased was the primary borrower, the estate will be responsible for the debt. If the estate cannot pay it, though, the cosigner will be responsible. This is one of the reasons many financial planners advise clients to avoid cosigning financial documents.
What happens if someone dies before paying off debt? ›
When someone dies, their debt is usually paid by their estate. An estate is all the assets owned at the time of death—like bank accounts, cars, homes, possessions, etc.
Will I inherit my parents' debt if they have no assets? ›
Most debt isn't inherited by someone else — instead, it passes to the estate. During probate, the executor of the estate typically pays off debts using the estate's assets first, and then they distribute leftover funds according to the deceased's will.
Are you responsible for your parents' debt? ›
It may come as a relief to find out that, in general, you are not personally liable for your parents' debt. If they pass away with debt, it is repaid out of their estate. However, this means that debt repayment could diminish or eliminate assets and property you could have inherited from your parents.
What happens to credit card debt when the debtor dies? ›
Credit card debt that's left after someone dies is often paid for by their estate, but in some cases, it can become the responsibility of a beneficiary.
Can creditors go after beneficiaries? ›
When a person dies, creditors can hold their estate and/or trust responsible for paying their outstanding debts. Similarly, creditors may be able to collect payment for the outstanding debts of beneficiaries from the distributions they receive from the trustee or executor/administrator.
