What Happens when a Debtor in Bankruptcy Dies or Becomes Incompetent Before the Case is Closed?
The answer to this question depends on which Chapter of bankruptcy you have filed under.
Rule 1016, Death or Incompetency of Debtor states as follows:
Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 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 or incompetency had not occurred.
Therefore, in a Chapter 7 case where a debtor has suffered death or incompetency the case continues. The estate of a Chapter 7 debtor is administered and the case concluded as though the death had not occurred. The case is allowed to proceed without interruption because upon filing the debtor’s non-exempt property becomes property of the bankruptcy estate for which it is the Chapter 7 trustee’s job to administer.
However, whether a debtor may continue under Chapters 11, 12, and 13 is at the discretion of the court. In these reorganization Chapters of bankruptcy the court will assess whether continuation of the case is possible and whether it will be in the best interests of the parties.