If a Debtor Passes Away During Business Bankruptcy, What Happens?

Getting a Small Business Loan After a Bankruptcy

If a Debtor Passes Away During Business Bankruptcy, What Happens?

During such a serious and complex process as bankruptcy, it is perfectly normal to have many questions and consider all scenarios. For a spouse who is watching a loved one go through the business bankruptcy process, this can be a frightening prospect as you wonder how the process will pan out for you. The process becomes even scarier when a debtor dies during bankruptcy proceedings, and you are left wondering how the case will proceed.

Many spouses and those close to the debtor might immediately feel concerned about what will happen during the bankruptcy process, as whatever happens will no longer affect the deceased person – but it could greatly impact those who are still here. The debtor’s death does have consequences to the survivors, which is why it is imperative to understand how sudden and unexpected death can impact your loved one’s bankruptcy case.

Will Bankruptcy Be Dismissed if a Debtor Passes Away?  

Many people are under the impression that a business bankruptcy will automatically be dismissed if a debtor passes away. This is not how this works. How the bankruptcy moves forward after their passing will depend upon many factors, especially understanding if the case was a Chapter 13 or Chapter 7 bankruptcy.

Impact of Chapter 7 Bankruptcy: If the death of a debtor takes place during Chapter 7 bankruptcy, the bankruptcy will usually continue onward unaffected. This is because Chapter 7 gets dropped into the hands of a trustee, who is fully responsible for making sure that the creditors receive the money that is owed to them. 

Impact of Chapter 13 Bankruptcy: Chapter 13 will be treated differently, as the debtor must fully participate in the process, which becomes impossible when the debtor has passed away after their filing. If no payments are made for years, the case will be dismissed. This means that the survivors of the loved one will have to proceed with the courts to take a course of action as they move forward.

Moving Forward 

Facing the Emotional Toll Business Bankruptcy Can Have on Your LifeLosing a loved one is never easy and every survivor deserves the time to grieve. However, you will also have to think about your next steps as far as a business bankruptcy is concerned so that you don’t miss out on any opportunities and so that nothing comes back to bite you during this difficult time. In many cases, survivors will move to have the case fully dismissed. The estate might be liable to creditors, but it is one way to proceed.

Another option that a family might choose is asking for a hardship discharge, which can be granted by the courts when plan payments are made. All dischargeable debts will then be wiped clean and the creditors will not be able to come after your loved one’s estate, making the process move smoothly for you.

How a Bankruptcy Attorney in Texas Can Assist You

We understand how difficult the bankruptcy process can be and the impact it can have on your life if your loved one passed away after filing for bankruptcy in Texas. Our experienced bankruptcy attorneys have handled many business-related cases for those who have viewed their options in Texas and decided what was best for them and their business. At MJ Watson & Associates, our experienced attorneys are waiting to hear from you and help you move forward at this time. Please contact us to find out how we can assist you at (214) 965-8240.

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