Can Your Estate File for Bankruptcy After You Die?
Many Florida residents will pass away leaving behind some amount of debt. In some cases, the debts may exceed the deceased person’s assets. You might wonder how the law deals with such scenarios. For instance, could the executor of an insolvent estate file for bankruptcy protection?
The short answer to this question is “no.” Bankruptcy is subject to federal law, which only covers debtors who are living people or certain types of legal entities, such as corporations or municipalities. There is simply no process in place for the executor of an estate to file for bankruptcy on the estate’s behalf.
Probate vs. Chapter 7 Bankruptcy
That said, having an estate file for bankruptcy would largely be pointless. This is because the whole point of probate–the process of administering a bankruptcy estate–is to liquidate the deceased person’s assets. In other words, before any beneficiaries can receive property under the will, any creditor with a valid claim is entitled to be paid first from the assets of the estate.
In this sense, probate actually mimics a Chapter 7 bankruptcy. With Chapter 7, certain “non-exempt” assets are liquidated–sold off by a trustee–and used to pay off a debtor’s creditors. Any remaining unsecured debt can then be discharged by the bankruptcy court.
Although debt is not technically “discharged” in probate, the reality is that if the estate is insolvent, some or all of the deceased person’s creditors will simply not get paid. And the creditor usually has no other way to collect the debt. There are some exceptions, such as where a living relative has co-signed a loan or the debt is secured by property. But generally speaking, the creditor is out of luck.
Chapter 13 Bankruptcy and Estate Beneficiaries
There are a couple of situations where probate and bankruptcy may intersect. If a person filed for bankruptcy before they died, the bankruptcy case does not end with their death. In the case of a Chapter 7 bankruptcy, the federal bankruptcy court can proceed with the liquidation, with any remaining property left to the probate estate. With other types of bankruptcy, such as Chapter 13, the bankruptcy judge may opt to continue the case or dismiss it, depending on the circumstances.
It is also worth noting that while a probate estate cannot file for bankruptcy, individual heirs or beneficiaries may wish to seek bankruptcy protection for their inheritance. For example, let’s say an adult child stands to inherit their parent’s house. If the property is facing foreclosure, filing for Chapter 13 protection can temporarily stop a forced sale of the property and allow the child time to get current on the mortgage payments and reorganize their own debts.
Speak with a Florida Probate Attorney Today
Dealing with debt is just one of many tasks individuals need to deal with when administering a loved one’s estate. If you have additional questions about this and would like to speak with an experienced Fort Myers estate and probate administration lawyer, call the Kuhn Law Firm, P.A., at 239-333-4529 today to schedule a free consultation.