Chapter 13 Debtor's Death Prior to Plan Completion
April 6, 2022
I recently had a case where the Chapter 13 (“Ch 13”) debtor passed away before she was able to complete her Ch 13 plan obligations. Since life is not guaranteed, it is important for chapter 13 debtors and one or more of their close family members, (and/or beneficiaries and executors of their will), to realize that anyone with a familial or financial relationship to the debtor can step in and carry out the deceased debtor’s intentions, as stated in a Ch 13 Plan confirmed by the Bankruptcy Court (“Court”).
Any person attempting to successfully complete a deceased debtor’s obligations under an approved Ch. 13 Plan in effect at the time of death will not be able to amend the deceased debtor’s Plan in any way, but will be able to carry out the debtor’s obligations necessary to complete the Plan. This is true whether the debtor died intestate or having a valid will, however the person attempting to carry out the debtor’s plan intentions and obligations may need to be approved as an administrator or executor by the surrogate court in the county where the debtor resided in order to do so.
Example of Recent Case Where the Debtor Passed Away Before Plan Completion
Recently I had a case with a confirmed Ch. 13 Plan, where the debtor passed away before she was able to complete her plan obligation to sell her home and payoff 100% of the amounts she owed to all of her secured and unsecured creditors from the proceeds of her expected home sale. In this case, the debtor filed her Ch. 13 petition one day before the county sheriff was set to conduct a foreclosure sale of her home; the debtor would have lost the substantial equity she had in her home had the sheriff conducted the foreclosure sale. With the bankruptcy court’s automatic stay provisions going into effect immediately upon the filing of her Ch. 13 case, the foreclosure sale was stopped dead in its tracks and the debtor stood ready to realize the substantial equity she had in her home through a prospective bankruptcy court approved sale of her home
Although the debtor had a valid will at the time of her demise, the will was outdated and the debtor had not told any of her relatives or beneficiaries named in her will about her financial situation, including her filing for Ch. 13 protection. To make matters worse, no executor named in her will survived the debtor; it was only because one of her surviving sisters fortunately had the desire and ability to carry out the debtor’s intentions under her plan, that the bankruptcy case was not dismissed and a foreclosure sale averted.
In order to have the legal ability to sell her sister’s home pursuant to the operative Ch. 13 plan, the surviving sister had to quickly retain a probate attorney in order to be appointed administratrix of the debtor’s estate on an emergent basis. The debtor’s sister was fortunately able to be appointed administratrix of the debtor’s estate in the nick of time to save the equity in her deceased sister’s home for the benefit of her sister’s estate. This was a close call because had the bankruptcy case been dismissed, no doubt the foreclosure sale would have been quickly rescheduled, and the equity which the debtor had in her property would have been lost to the debtor’s estate.
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