“It is said that nothing is certain except for death and taxes, but today the Court is asked a question about death and discharge, for which there is some uncertainty in the Chapter 13 context.” see In re: Meadows 2020 Bankr. Lexis 3050 (Bankr. D. Utah 2020)
When a debtor dies during a Chapter 13 bankruptcy, the case does not automatically end. Instead, several options are available depending on the circumstances of the estate, the claims of creditors, and wishes of surviving family members.
Fed. R. Bankr. P. 1016 states: “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.”
Several possible options may be available under these circumstances depending upon each particular jurisdiction:
- Dismissal
- Hardship discharge if the debtor had completed a significant portion of the repayment plan
- Continuation of the case with another party such as a spouse, heir, or surviving family member making plan payments. This is usually done where there is a strong interest in preserving property like a home that was included in a plan.
- Conversion to Chapter 7
Assume a chapter 13 debtor dies while in a confirmed chapter 13 plan, and has little or no individual assets. There is a non -filing spouse. The decedent/debtor owns a home with his wife as tenants by the entirety, and the chapter 13 plan is cures mortgage arrears while maintaining monthly payments. The question arises what to do about the bankruptcy? What state requirements are there about probate and clearing the title to the marital home? What benefits flow from each option? Is it feasible to continue the chapter 13 case to plan completion?
Bankruptcy courts have been inconsistent in their interpretation and application of FRBP 1016. A comprehensive analysis of these inconsistencies is found in an article:
“Continuation of Chapter 13 Postmortem: Why Courts Should Allow Deceased Debtors’ Cases to Continue Post Plan Confirmation.” Alexandra R. Byrnes, 37 Emory Bankr. Dev. J. 427 (2021), Available at: https://scholarlycommons.law.emory.edu/ebdj/vol37/iss2/6
For the purposes of this article, we will assume that under your jurisdiction the bankruptcy court permits the continuation of a deceased debtor’s case. The question presented will be, how to analyze the best option for the heirs and beneficiaries. The Chapter 13 Trustee will also have an important role in the continuation of the case. The Trustee will need adequate assurance whether it is feasible for the estate to continue the plan payments.
Every state has its own probate and inheritance laws, so the initial analysis will be focused there. Our hypothetical assumes the decedent/debtor has few individual assets, and a residence owned jointly with his wife. For example, in Delaware, if a decedent has less than $30,000 in individual assets, a regular estate need not be opened. It would be administered with a small estate affidavit. No claims would be recognized by the Delaware Register of Wills. A good approach might be to continue paying the chapter 13 case to complete the plan and cure the mortgage arrears.
A recent case points to a reasoned approach addressing a debtor dying during a chapter 13 case. In re: Wells 660 B.R. 311 (Bankr. E.D. WA 2024) the bankruptcy court held it had the discretion to continue the proceedings despite the Debtor’s death. In this case, the Debtor died prior to confirmation. Debtor’s counsel asserted, in a Motion to Continue Administration, that prior to his death the Debtor had accomplished most of the tasks required to achieve confirmation. The Debtor’s estate personal representative was allowed to step into the shoes of the Debtor. The plan was a liquidation plan and therefore did not require ongoing payments. The proposed distribution to creditors was 100%. With that in mind, the Court found that FRBP 1016 granted the Court the discretion to continue the proceedings after death. Further, the Court found no default presumption requiring dismissal. The Court examined the facts in this case, and decided dismissal was not appropriate. Included in the Court’s fact specific inquiry was if further administration possible, and in the best interest of the parties. It answered in the affirmative as to both. As such, the Court granted the Motion to Continue Administration.
However, other courts have found that FRBP 1016 does not allow for further administration of a chapter 13 case if a death occurs prior to confirmation of a plan. In re: Russell 2024 WL 150629 (Bankr KY 2024) the Bankruptcy Court denied a Motion to Waive the Appearance of the Debtor at the First Meeting of Creditors when the Chapter 13 debtor dies prior to the Section 341 meeting. Further, the Court dismissed the case as no plan was confirmed. This is a fairly common result at this stage of the case:
“If death or incapacity occurs before confirmation, it may be difficult or impossible to prove the conditions for confirmation—for example, that the debtor will be able to make the payments called for by the plan as required by the feasibility test in § 1325(a)(6)” See “Keith M. Lundin, Lundin On Chapter 13, § 128.1, at ¶ 2, LundinOnChapter13.com”.
For example, in the case of In re: Ward 652 B.R. 250 (Bankr. D. South Carolina 2023) where a debtor husband in a joint case died prior to confirmation, the Court denied debtors’ Motion for Continued Administration of the Estate. The debtor argued that the case could continue without any modification of the plan that had been submitted. The Court disagreed holding that further administration was “neither possible or in the best interest of the parties.” Accordingly, the Court dismissed the debtor husband’s petition, but allowed the debtor wife to proceed in chapter 13 under the same case number.
Where Chapter 13 plans have substantially completed and the debtor dies, courts appear more willing to allow the case to continue and finding it appropriate under FRBR 1016. In re: Ibarra 2022 WL 1787637 (W.D. Texas 2022) the Court granted the Motion to Waive Requirement to complete the Debtor Education Course. The Court found that in this case under FRBP 1016 further administration was possible. The plan was completed and the only prerequisite remaining to discharge was the Debtor Ed requirement.
Another option courts have considered is conversion to Chapter 7. However, most bankruptcy courts are of the opinion that FRBP 1016 does not permit such conversion. The leading case is In re: Spiser 232 B.R. 669 (Bankr. N.D. Texas 1999). In that case Judge Akard held after both chapter 13 debtors died post-petition and pre-confirmation, their probate estates were not eligible to convert to chapter 7. Since further administration was not possible, and it was in the best interest of creditors to allow the probate court to administer the estate, the Court dismissed the case.
This interpretation of the limits FRBP 1016 was followed in the more recent case of In re: Moore 2017 WL 4417582 (Bankr. N.D. Ohio 2017). In this joint husband and wife case the debtor wife died post-confirmation. Since without both debtor’s incomes, the plan could not be completed and a Notice of Voluntary Conversion to Chapter 7 was filed on behalf of both debtors. The court held that the decedent wife’s estate was not eligible to be a debtor under Chapter 7. As such, the Court severed her case and reconverted it to Chapter 13 for dismissal. At the start of the opinion the Court pointedly stated:
“Dead debtor issues plague the court because of the dearth of direct guidance in the Bankruptcy Code. As a result, the case law looks like a seismograph needle in the middle of an earthquake.” Id. Moore
Conclusion: Nothing is certain in Chapter 13 bankruptcy. Cases may continue for up to 5 years or longer. Sometimes debtors do not live to complete their plans. Each party, whether a surviving family member, creditor, or trustee must analyze the best option available. What are the limits to FRBP 1016 in your jurisdiction? What are the current probate estate requirements? What path should you follow? What is certain, when required, a court will decide.
Printed with permission, NACTT Academy, Considerchapter13.org, December 15, 2024)
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Chapter 13 and Death: Discharge or Dismissal?
“It is said that nothing is certain except for death and taxes, but today the Court is asked a question about death and discharge, for which there is some uncertainty in the Chapter 13 context.” see In re: Meadows 2020 Bankr. Lexis 3050 (Bankr. D. Utah 2020)
When a debtor dies during a Chapter 13 bankruptcy, the case does not automatically end. Instead, several options are available depending on the circumstances of the estate, the claims of creditors, and wishes of surviving family members.
Fed. R. Bankr. P. 1016 states: “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.”
Several possible options may be available under these circumstances depending upon each particular jurisdiction:
Assume a chapter 13 debtor dies while in a confirmed chapter 13 plan, and has little or no individual assets. There is a non -filing spouse. The decedent/debtor owns a home with his wife as tenants by the entirety, and the chapter 13 plan is cures mortgage arrears while maintaining monthly payments. The question arises what to do about the bankruptcy? What state requirements are there about probate and clearing the title to the marital home? What benefits flow from each option? Is it feasible to continue the chapter 13 case to plan completion?
Bankruptcy courts have been inconsistent in their interpretation and application of FRBP 1016. A comprehensive analysis of these inconsistencies is found in an article:
“Continuation of Chapter 13 Postmortem: Why Courts Should Allow Deceased Debtors’ Cases to Continue Post Plan Confirmation.” Alexandra R. Byrnes, 37 Emory Bankr. Dev. J. 427 (2021), Available at: https://scholarlycommons.law.emory.edu/ebdj/vol37/iss2/6
For the purposes of this article, we will assume that under your jurisdiction the bankruptcy court permits the continuation of a deceased debtor’s case. The question presented will be, how to analyze the best option for the heirs and beneficiaries. The Chapter 13 Trustee will also have an important role in the continuation of the case. The Trustee will need adequate assurance whether it is feasible for the estate to continue the plan payments.
Every state has its own probate and inheritance laws, so the initial analysis will be focused there. Our hypothetical assumes the decedent/debtor has few individual assets, and a residence owned jointly with his wife. For example, in Delaware, if a decedent has less than $30,000 in individual assets, a regular estate need not be opened. It would be administered with a small estate affidavit. No claims would be recognized by the Delaware Register of Wills. A good approach might be to continue paying the chapter 13 case to complete the plan and cure the mortgage arrears.
A recent case points to a reasoned approach addressing a debtor dying during a chapter 13 case. In re: Wells 660 B.R. 311 (Bankr. E.D. WA 2024) the bankruptcy court held it had the discretion to continue the proceedings despite the Debtor’s death. In this case, the Debtor died prior to confirmation. Debtor’s counsel asserted, in a Motion to Continue Administration, that prior to his death the Debtor had accomplished most of the tasks required to achieve confirmation. The Debtor’s estate personal representative was allowed to step into the shoes of the Debtor. The plan was a liquidation plan and therefore did not require ongoing payments. The proposed distribution to creditors was 100%. With that in mind, the Court found that FRBP 1016 granted the Court the discretion to continue the proceedings after death. Further, the Court found no default presumption requiring dismissal. The Court examined the facts in this case, and decided dismissal was not appropriate. Included in the Court’s fact specific inquiry was if further administration possible, and in the best interest of the parties. It answered in the affirmative as to both. As such, the Court granted the Motion to Continue Administration.
However, other courts have found that FRBP 1016 does not allow for further administration of a chapter 13 case if a death occurs prior to confirmation of a plan. In re: Russell 2024 WL 150629 (Bankr KY 2024) the Bankruptcy Court denied a Motion to Waive the Appearance of the Debtor at the First Meeting of Creditors when the Chapter 13 debtor dies prior to the Section 341 meeting. Further, the Court dismissed the case as no plan was confirmed. This is a fairly common result at this stage of the case:
“If death or incapacity occurs before confirmation, it may be difficult or impossible to prove the conditions for confirmation—for example, that the debtor will be able to make the payments called for by the plan as required by the feasibility test in § 1325(a)(6)” See “Keith M. Lundin, Lundin On Chapter 13, § 128.1, at ¶ 2, LundinOnChapter13.com”.
For example, in the case of In re: Ward 652 B.R. 250 (Bankr. D. South Carolina 2023) where a debtor husband in a joint case died prior to confirmation, the Court denied debtors’ Motion for Continued Administration of the Estate. The debtor argued that the case could continue without any modification of the plan that had been submitted. The Court disagreed holding that further administration was “neither possible or in the best interest of the parties.” Accordingly, the Court dismissed the debtor husband’s petition, but allowed the debtor wife to proceed in chapter 13 under the same case number.
Where Chapter 13 plans have substantially completed and the debtor dies, courts appear more willing to allow the case to continue and finding it appropriate under FRBR 1016. In re: Ibarra 2022 WL 1787637 (W.D. Texas 2022) the Court granted the Motion to Waive Requirement to complete the Debtor Education Course. The Court found that in this case under FRBP 1016 further administration was possible. The plan was completed and the only prerequisite remaining to discharge was the Debtor Ed requirement.
Another option courts have considered is conversion to Chapter 7. However, most bankruptcy courts are of the opinion that FRBP 1016 does not permit such conversion. The leading case is In re: Spiser 232 B.R. 669 (Bankr. N.D. Texas 1999). In that case Judge Akard held after both chapter 13 debtors died post-petition and pre-confirmation, their probate estates were not eligible to convert to chapter 7. Since further administration was not possible, and it was in the best interest of creditors to allow the probate court to administer the estate, the Court dismissed the case.
This interpretation of the limits FRBP 1016 was followed in the more recent case of In re: Moore 2017 WL 4417582 (Bankr. N.D. Ohio 2017). In this joint husband and wife case the debtor wife died post-confirmation. Since without both debtor’s incomes, the plan could not be completed and a Notice of Voluntary Conversion to Chapter 7 was filed on behalf of both debtors. The court held that the decedent wife’s estate was not eligible to be a debtor under Chapter 7. As such, the Court severed her case and reconverted it to Chapter 13 for dismissal. At the start of the opinion the Court pointedly stated:
“Dead debtor issues plague the court because of the dearth of direct guidance in the Bankruptcy Code. As a result, the case law looks like a seismograph needle in the middle of an earthquake.” Id. Moore
Conclusion: Nothing is certain in Chapter 13 bankruptcy. Cases may continue for up to 5 years or longer. Sometimes debtors do not live to complete their plans. Each party, whether a surviving family member, creditor, or trustee must analyze the best option available. What are the limits to FRBP 1016 in your jurisdiction? What are the current probate estate requirements? What path should you follow? What is certain, when required, a court will decide.
Printed with permission, NACTT Academy, Considerchapter13.org, December 15, 2024)