Creditors’ Rights: What if your debtor dies?

Sad WomanUnlike the proverbial certainty of death and taxes, the death of a debtor during the period of a bankruptcy proceeding can be an occasion of uncertainty for creditors.  Many times after the death of a debtor in bankruptcy creditors question whether they are still owed money, who will pay their claim, or they may even wonder if they will be paid at all.

Federal Bankruptcy Rule 1016 has specific directives for specific types of bankruptcies.  The rule states that in a Chapter 7 bankruptcy, the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death had not occurred.  In a Chapter 11, 12 or 13, the case may be dismissed; 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, as though the death had not occurred.  Simply put, debts owed to creditors do not go away with the death of a debtor until they are discharged.

Creditors may pursue the debtor’s estate, if one exists, or the debtor’s survivors for payment if a bankruptcy case is dismissed or discontinued. If an estate exists, the executor of the estate would be empowered to pay the debts.  In Arizona and other community property states, laws specify that debts can pass to a surviving spouse.  Co-signers of loans must pay the remaining term of the loan after the other signed has died. Family members or others who stand to inherit money or property from a debtor must pay off the late debtor’s existing debts before they can collect any inheritance due them.

An unfortunate situation such as the death of a debtor in a bankruptcy can add difficulty to the position of any creditor. Working with an experienced, knowledgeable Arizona creditor’s attorney can help make the proceedings less disruptive all around.

If you would like more information about creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

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