What happens when the debtor dies in bankruptcy? Does the case get dismissed entirely? Can creditors go after the debtor’s estate?
Bankruptcy Rule 1016 states that after the death of a chapter 13 debtor, the case may be dismissed if further administration of the case is not possible. While Rule 1016 address the death of the debtor, Rule 1328 addresses discharge. Both govern the situation in which the debtor passes away. The courts interpret the issue of discharging the debtor’s debt upon death differently. Some find that death is a situation for which a debtor should not be held accountable, while others take the opposite approach.
Court Authority
There is one line of authority that holds a hardship discharge under § 1328(b) is not available to a deceased debtor because such result conflicts with Rule 1016.[1] According to these cases, if the debtor’s death is the basis of the hardship discharge, such that the hardship discharge could not have been sought if the debtor never died, the case could not be found to have proceeded in the same manner “as though the death . . . had not occurred,” which is a requirement of Rule 1016.
In re Miller, the bankruptcy court dismissed the debtor’s chapter 13 case finding that the case could not proceed as if the debtor had not died because plan payments could not be made without his earnings. [2] Likewise, the In re Hennessy casecourt dismissed a deceased debtor’s chapter 13 case rather than grant a hardship discharge. In Hennessy, the court noted that Rule 1016 provides for two options after a debtor dies, dismissal or proceeding as if the death had not occurred, and that a hardship discharge did not fall under either option. As the debtor’s death formed the basis for the hardship discharge, the court held it was contrary to Rule 1016.[3]
Hardship Discharge
A recent case changed the limited construction of the hardship discharge and a debtor’s death in cases like Miller and Hennessy. In re Hoover, the Bankruptcy Court for the Northern District of California ruled that a debtor’s death can be grounds for a debtor to discharge remaining debts owed to unsecured creditors even if the debtor has not completed payments under his/her chapter 13 plan. The Hoover court identified a contrast between the debtor’s circumstances and the prior controlling case of Hennessy.[4]
The difference in the facts of the caseswas that in the Hennessy the debtor passed away about a year after confirming her chapter 13 plan and no payments were yet made to creditors. The court found that if it granted a hardship discharge to the debtor it would be unfair to the creditors awaiting payment. In Hoover, the debtor’s death was long after creation of his chapter 13 plan and he was able to pay in full his secured creditors and priority creditors and all but the final payment to his unsecured creditors. The court here found that the equities allowed for a hardship discharge.
In practice the Hoover ruling allowed that at the debtor’s death his estate qualified for the hardship discharge. Thus, the creditors in that case could not go after the debtor’s estate to fulfill their debts. Whether the death of a debtor entitles his estate to a chapter 13 hardship discharge depends on the facts and circumstances of each individual case.
Contact an Experienced Bankruptcy Attorney
If you or someone you know is facing a similar issue during bankruptcy such as the hardship discharge faced above, contact Attorney Christopher L. Arrington. Attorney Arrington works with clients to learn about their situation and explain to them the options that may be available in light of their circumstances and debt situation. If you are located in Putnam and Hendricks Counties or surrounding areas, please call the office for a free consultation to discuss your case.
[1]In re Hennessy, No. 11- 13793, 2013 WL 3939886 (Bankr. N.D. Cal. July 29, 2013).
[2]In re Miller, 2014 WL 4723881.
[3]In re Hennessey, No. 11-13793, 2013 WL 3939886, at *1.
[4]Id.