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Typically, debt owed by person becomes uncollectable upon death. However, if the deceaed person leaves behind an estate, that estate may be responsible for resolving the outstanding debts. As such, a probate estate will often search for ways to eliminate the deceased person's debts so as to allow for maximum distribution to heirs. The question addressed here is whether bankruptcy is an option for resolving a deceased person's debts.
Rule 1016 of the Federal Rules of Bankruptcy Procedure governs what happens when a debtor is deceased. According to Rule 1016, a probate estate cannot file for bankruptcy. The reasoning behind this is that the fresh start goal is personal to the debtor. In other words, allowing a personal representative to substitute would allow them to accomplish indirectly what it could not directly.
If you or your family are going through the probate process and there were significant debts owed by the deceased individual, your questions should be directed toward a probate attorney.
What Happens if a Debtor Passes After Filing Bankruptcy?
If a debtor passes after filing Chapter 7, the case will continue and the bankruptcy estate will be administered. Rule 1016 will sometimes allow a Chapter 13 case to continue after the debtor's death, "if further administration is possible and in the best interest of the parties."