Illness, Death And Bankruptcy

October 17, 2011 by  Filed under: Bankruptcy 

The possibility of a major illness or death during bankruptcy is always a reality. What will happen to the bankruptcy case if the debtor falls seriously ill or dies? Let’s take a look at the usual procedures in both circumstances:

Serious Illness During Chapter 7 Bankruptcy

If a debtor falls seriously ill during Chapter 7 bankruptcy, this may create additional debt and could shift the course of their bankruptcy case. If the illness will prevent the debtor from earning income from now until the foreseeable future and they have an asset distribution case, they may want to speak with their bankruptcy attorney on how they can handle the case differently. Depending on where they are in the Chapter 7 process and the circumstances of their illness, they might want to dismiss and refile later to include future medical bills or they may decide to continue the case.

Death During Chapter 7 Bankruptcy

If a debtor dies during Chapter 7 bankruptcy, the case is not automatically dismissed. If there are assets in the case and the debtor has already attended the meeting of creditors, the assets may be liquidated after applying appropriate exemptions and the funds distributed to creditors. If the debtor did not attend the meeting of creditors before dying, a representative such as the surviving spouse or the trustee of the debtor’s probate estate may represent the deceased debtor.

If there is a surviving spouse and all or most of the debt was in the deceased debtor’s name, the bankruptcy attorney may advise a dismissal of the case. A voluntary bankruptcy dismissal should be done with caution because creditors may have the power to pursue the surviving spouse for payment.

Illness During Chapter 13 Bankruptcy

If a debtor has fallen seriously ill during Chapter 13 bankruptcy and their income will be disrupted from now into the foreseeable future, they may be able to convert their case to a Chapter 7 and discharge their debts. Working with a bankruptcy attorney, the debtor can determine if a reduction of payment or a conversion is the best course of action.

If the debtor is married and filed bankruptcy jointly, the best course of action may depend on whether they are the primary breadwinner. If the primary breadwinner in the household falls ill, the impact on the Chapter 13 case is great. However, if a spouse who is not the primary breadwinner falls ill, then the impact on the Chapter 13 case may be minimal.

Death During Chapter 13 Bankruptcy

Similar to an illness in bankruptcy, a deceased debtor’s Chapter 13 bankruptcy may be converted to Chapter 7. If they are married and not the primary breadwinner, the bankruptcy trustee may not grant a conversion but may offer reduced payment instead depending on how much the debtor’s death impacts the household income.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.

Article Source:
http://EzineArticles.com/?expert=Reed_Allmand

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