People file a chapter 13 bankruptcy in New Jersey to get a fresh start and reorganize their debt (often to save their home). But what if the debtor dies after the bankruptcy is filed? Is the fresh start lost? In short, no. The bankruptcy court rules allow a chapter 13 to continue if the debtor or debtors die after it is filed.
Should the Bankruptcy Continue?
But just because a bankruptcy can continue, doesn't mean it should. The surviving spouse in a joint bankruptcy, or the debtor's family with one filer, have a decision to make after the death. Do they want the bankruptcy to continue?
The court rules allow a choice: the case may be dismissed if it no longer makes sense to proceed, or "if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible."
Discharging the debt can make the administration of the estate easier, but it is an involved decision (and not always an easy one). If there is only one debtor, there is the question of whether payments can continue to the end of the plan.
This can be a problem if the debtor's home is being saved from foreclosure, and there is equity that can go to heirs if it can be preserved. In that case, someone may have to take over payments if a refinance cannot be obtained or the home sold quickly.
If just unsecured debt is being paid, then a hardship discharge may be possible. Where it is a joint case and one spouse dies, then it is a matter of whether the surviving spouse can continue the payments.
What Do I Do?
The decision of whether to continue a NJ bankruptcy should only be made after consulting with an attorney. Often times, there can be issues of state inheritance laws that can come into play.
If you live in southern New Jersey and are thinking about filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site to schedule a consultation in my Woodbury office.
If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.
