Can You File Bankruptcy For A Person Who Has Passed Away (A Decedent Estate)?
When an individual passes away, all of their property (including personal property (bank accounts, automobiles, etc.) and real property (residence, investment properties, etc.), as well as other tangible and intangible assets) belong to a newly created “estate.” The individual is then referred to as the decedent.
A decedent’s estate is not eligible to file a Chapter 13 bankruptcy petition because it is not considered an “individual” as defined in Section 109 of the Bankruptcy Code. 11 U.S.C. §109. Similarly, a decedent themselves cannot file for bankruptcy. As a result, an executor or personal representative of the decedent’s estate cannot file for bankruptcy on the decedent’s or the estate’s behalf.
When the decedent's estate is created under state law, the state courts have jurisdiction over the administration of that estate. Creditors will receive notice of the administration, and may file proof of claims owed to them by the decedent estate. If the estate's assets exceed the estate's debts, the people who stand to receive those assets, the beneficiaries, will receive distributions of whatever net amount is remaining according to the wishes of the deceased or according to state law. If the estate's debts exceed the estate's assets, the assets are liquidated to pay those debts. There will be no net amount to be distributed to the beneficiaries.
However, if the beneficiaries want to prevent a creditor from foreclosing upon a particular piece of property that they stand to inherent from the decedent estate, the beneficiaries can file for bankruptcy, in their individual capacity, if they are otherwise eligible to file a petition.
Why would a beneficiary file bankruptcy in this case? Beneficiaries may want to keep the property in the estate for many reasons. Maybe it the real property is their childhood home and they want to preserve it for future generations. Or perhaps the property is their current residence and, if foreclosed, they will have to move. In any instance the beneficiary should consider bankruptcy.
Upon filing a bankruptcy petition, the automatic stay is enacted, which can stop the foreclosure sale or other debt collection action that is endangering the beneficiary's interest in the decedent's estate. A reorganization bankruptcy, such as a Chapter 13 bankruptcy or a Chapter 11 bankruptcy, can greatly assist the beneficiary reorganize these debts with the protections of the Bankruptcy Court. This will help the beneficiary work towards retaining the property in the long term.
If you are an administrator of a decedent estate, and/or a beneficiary, and you want to consider bankruptcy to protect assets of a decedent estate, please contact our New Jersey bankruptcy attorneys for a free consultation.