When a person dies when he still has debts, his debts are not wiped out and his estate will still need to pay the lenders what the deceased owes. In case of death of the debtor, the surviving spouse will be responsible but only for the deceased’s community property debts or those debts acquired during the marriage of the parties. The spouse is made liable for the debts of the decedent because Arizona is a Community Property State. Check with a reliable bankruptcy lawyer in Phoenix to further understand the state bankruptcy laws.
How to Get Rid of the Debts?
An available remedy for the spouse and relatives of the deceased is to declare bankruptcy because according to the Bankruptcy Law, bankruptcies are legal proceedings wherein one can obtain debt relief and have a fresh start. Filing bankruptcy enables bankruptcy discharges for most debts of the decedent such as:
- Credit card debt
- Medical debt
- Tax debt
- Loan debt
- Attorney fees
- Student loans if the decedent experienced undue hardship
What Bankruptcy Options Are Available in Arizona?
Dealing with debt collectors after the death of a loved one is both financially and emotionally draining hence, filing for bankruptcy may be beneficial to you since your bankruptcy petition gives an automatic stay or bankruptcy protection which stops:
- Wage garnishment
- Car repossession
- Creditor harassment including collection calls harassment and other collection agencies
There are different types of bankruptcy with the most common being Chapter 7 and Chapter 13. However, Chapter 7, or liquidation bankruptcy does not have many options when a debtor dies or not because nonexempt properties outside the bankruptcy exemptions are going to be sold off by a bankruptcy trustee. The proceeds of the liquidated assets are used to pay off the creditors. More people opt for Chapter 13 because it does not require you to liquidate most of your assets that often have significant sentimental value. However, if you have already filed a Chapter 13 Bankruptcy or Repayment Plan before the death of the spouse, you have more options including:
- Continuing with the Chapter 13 proceeding – upon court order, you may continue the petition for bankruptcy if you can continue making payments and if the following scenarios apply to you:
- You have many debt problems.
- You have a steady source of income.
- Your inheritance from the decedent is not enough.
- Modify the payment plan for a lower amount to be paid – if the death of your spouse took a toll on your monthly income wherein you cannot pay the debt repayment plan. However, secured debts like a mortgage payment must still be paid back or else, the creditor will repossess the property.
- Convert the bankruptcy case to Chapter 7 – is an option available if you cannot afford to pay the existing rate of monthly payments provided your disposable income is below the median income required by the State of Arizona. However, you will need to first pass the means test and attend credit counseling before you can avail of this remedy
- Request a hardship discharge – if the death of your spouse makes you unable to repay the restructuring of debts made by Chapter 13. The following circumstances may enable you to qualify for a hardship discharge:
- You are not at fault for failing to finish the debt management plan.
- Unsecured creditors have been paid what they are due under the Chapter 7 bankruptcy.
- You cannot modify the plan anymore.
Talk to a Bankruptcy Attorney in Arizona
The Bankruptcy Code allows an individual to file for bankruptcy cases without the need of a bankruptcy lawyer but doing so is very risky because the laws change with the bankruptcy process. It can be very complicated if you do not have prior knowledge.
If you are considering bankruptcy but you are not yet certain if filing bankruptcy is the best choice, we, at Phoenix Fresh Start, will help you get to the right decision to resolve your financial problems and obtain a fresh start. Our bankruptcy lawyers in Arizona are experienced in bankruptcy-related matters. Call us now for a free legal consultation!