There are times when a debtor dies while the bankruptcy petition is ongoing but what happens to the bankruptcy? The death of the debtor will affect the bankruptcy proceedings depending on what types of bankruptcy you filed. As a general rule, once a person dies, the heirs are not responsible for paying the debts of the deceased. However, if the debts are shared or joint, the people he shared the debt with can be held liable for the payment of the debt. Furthermore, the debts of the deceased will be paid by his estate before his heirs can acquire their inheritance. In Arizona bankruptcy, the debts are not automatically discharged once the debtor dies.

Death of a Debtor in Chapter 7

Under the Bankruptcy Laws in Arizona, when a debtor dies in a liquidation or Chapter 7 bankruptcy, the federal court will eliminate or wipe out most, if not all, of your debts such as credit card debt, payday loan debt, medical bills, and other types of debt in exchange of surrendering or turning over some of your personal properties to the trustee in bankruptcy.  The trustee will then sell your property to pay off your creditors and obtain debt relief.

Due to the bankruptcy trustee handling most of the work, the debtor does not need to be involved much after passing the means test and qualifying for chapter 7.  As such, his death does not affect the bankruptcy process because the trustee can carry on with selling the property and paying off the liabilities. The bankruptcy court will then issue a bankruptcy discharge court order, releasing the deceased debtor’s liabilities as if he were still alive.

Death of a Debtor in Chapter 13

Filing Bankruptcy in ArizonaThe United States Bankruptcy Code allows the heirs of the filers of Chapter 13 bankruptcy to decide whether to continue the bankruptcy case or dismiss it. Under this bankruptcy petition, the debtor needs to participate in Chapter 13 bankruptcy payments to be made by the debtor himself with the help of trustees to make a repayment plan.

If the debtor dies, he will not be able to make monthly payments and hence, the court will dismiss bankruptcy cases where the monthly payments are not made. If the heirs want to continue the bankruptcy proceeding, the heirs will need to obtain the affirmation of the court for them to take over the duties of the deceased debtor and follow the payment plan in his stead.

What are the Options of the Heirs?

In Arizona, there are several options that the heirs of a deceased who filed Chapter 13 may take such as:

  1. Dismissal of the case – is the most common remedy that heirs avail when the debtor dies. However, if the case is dismissed, the estate of the deceased will not obtain a discharge and will remain liable to the collectors. The dismissal will remove the effect of bankruptcy protection such as prevention of:
  2. Harassment or collection calls from lenders and other collection agencies
  3. Car repossession
  4. Foreclosure
  5. Wage garnishment
  6. Asking for Hardship Discharge – the court may order that incomplete repayment of Chapter 13 be granted through undue hardship discharges for unsecured debts except for properties that are under bankruptcy exemption.
  7. Converting to Chapter 7 Bankruptcy – is similar to asking for a hardship discharge. The court will convert the chapter 13 case into a chapter 7 to receive a discharge.
  8. Continue the Chapter 13 case – where the heirs voluntarily ask to do so or the court orders the continuance of chapter 13 for the benefit of all parties in interest.

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 risky because the laws are changing and the bankruptcy process can be very complex without 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!