What Happens When Bankruptcy is Interrupted?

Life is unpredictable. When the unthinkable happens, the last thing anyone wants to be thinking about is how to handle an incomplete bankruptcy — but, it does eventually need to be addressed. When a debtor passes away during the bankruptcy process, what happens to those debts? Are they inherited? Do they disappear? Do new rules crop up? How should the living handle the financial affairs of those who have passed on?

man upset after looking at card statement.

Death and Bankruptcy

There are some generalities that apply to the handling of both Chapter 7 and Chapter 13 bankruptcies that are interrupted by death:

  • Death does not automatically end the bankruptcy. The bankruptcy continues, and must be reassessed in light of the new situation.
  • Debts are not passed down to heirs, who can keep exempt assets; but creditors can still pursue the estate to fulfill the requirements of the debt, which can eat into property inheritances.

However, when a debtor in the middle of bankruptcy proceedings passes away, the manner in which his or her debts are handled by the courts and the survivors largely depends — like most aspects of bankruptcy — upon whether the bankruptcy falls under Chapter 7 or Chapter 13.

Chapter 13 and Chapter 7 Are Affected Differently

Chapter 7 is more or less unaffected by the passing of a debtor mid-bankruptcy. This is because in Chapter 7, the trustee manages and administers the redistribution of funds to creditors. The trustee can do their job with minimal debtor input.

Chapter 13, on the other hand, involves the debtor far more heavily. The debtor is responsible for making monthly payments to the trustee over the course of three to five years. If those payments are not made, the case can be dismissed. Therefore, when a debtor passes away during Chapter 13 proceedings, a new course of action must be decided upon by the court. The court will decide upon one of four paths for the case to take.

1. Continuation under Chapter 13.

2. Conversion from Chapter 13 to Chapter 7. 

3. Case dismissal. A case dismissal is a mixed bag. A benefit of a case dismissal is that the family of the debtor is no longer obligated to continue the monthly payments to the trustee that are normally required by Chapter 13 bankruptcy. However, a dismissal also means that a discharge cannot be received, and in turn, that creditors may continue to collect from the deceased debtor’s estate.

4. A hardship discharge. If an individual is the spouse of the deceased debtor, they may ask the court to grant what is known as a “hardship discharge.” If granted, this discharge means that creditors cannot continue to pursue payments from the debtor’s survivors.

Even if they are supposed to be legally barred from doing so, particularly aggressive creditors may continue to seek payment. If you are being harassed by creditors, if a loved one dealing with bankruptcy has passed on, or if you are considering your bankruptcy options, contact Young, Marr, Mallis & Associates immediately for help. You can also call us at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania.


Related Articles

The Bankruptcy Process

Many people live paycheck-to-paycheck or have minimal savings. These circumstances mean that even a small financial setback could result in a crisis. When you cannot pay your utility bills, mortgage, […]

Read More »

How Bankruptcy Can Protect You

Filing for bankruptcy is often thought of as a sign of failure. At best, it is seen as a last resort when faced with too many bills, collection letters, or […]

Read More »

Means Testing in Chapter 7 or Chapter 13 Bankruptcy

Bankruptcy has many layers. Before filing, a potential debtor will have to gather their bills, bank statements, tax returns, and proof of all household income for the previous six months. […]

Read More »

Have an Attorney Review Your Case for Free

Get a Free Case Evaluation

Contact Our Attorneys To Learn How We Can Help Your Case


12 Convenient Locations Across Pennsylvania and New Jersey

Philadelphia, PA

7909 Bustletown Ave, 1st Floor Philadelphia, PA 19152 (215) 607-7478 Get Directions

Quakertown, PA

328 Broad St. Quakertown, PA 18951 (215) 515-6876 Get Directions

Allentown, PA

137 N 5th St. Suite A Allentown, PA 18102 (215) 240-4082 Get Directions

Jenkintown, PA

135 Old York Road Jenkintown, PA 19046 (215) 544-3347 Get Directions

Easton, PA

101 Larry Holmes Dr. #212 Easton, PA 18042 (215) 515-7077 Get Directions

Bala Cynwyd, PA

2 Bala Plaza, Suite 300 Bala Cynwyd, PA 19004 (610) 557-3209 Get Directions

Bensalem, PA

3554 Hulmeville Rd, #102 Bensalem, PA 19020 (215) 515-6389 Get Directions

Plymouth Meeting, PA

600 W. Germantown Pike #400 Plymouth Meeting, PA 19462 (215) 515-6876 Get Directions

Harrisburg, PA

2225 Sycamore St Harrisburg, PA 17111 (717) 864-8887 Get Directions

Cinnaminson, NJ

909 Route 130 South #202 Cinnaminson, NJ 08077 (609) 796-4344 Get Directions

Hamilton Twp., NJ

100 Horizon Center Blvd., 1st and 2nd Floors Hamilton Township, NJ 08691 (609) 236-8649 Get Directions

Marlton, NJ

10000 Lincoln Drive E One Greentree Centre, Suite 201 Marlton, NJ 08053 (856) 213-2805 Get Directions

Piscataway, NJ

200 Centennial Ave. Suite 200 Piscataway, NJ 08854 (908) 367-7256 Get Directions