Can a Probate Estate File Bankruptcy?

The death of a loved one can be devastating both emotionally and financially for the family. Those left behind are often depending on the resources left behind, and the situation becomes complicated when there are more debts than assets.

Technically, a person’s debts might not be collectible upon death, and some loans, like student loans, are automatically discharged once the borrower dies. However, if there is an estate, debts may need to be paid from the assets of the deceased person.

Once someone dies, all of that person’s assets and debts become part of that person’s estate. This is true whether or not the individual left a will or had a lot of money. At that point, the debts need to be paid, negotiated, or discharged before the heirs can receive their specific bequests.

Bankruptcy Code

The federal bankruptcy code forbids anyone but an individual from filing for bankruptcy, and the estate is not considered an individual under 11 U.S.C. §109. Creditors will file claims on the estate to get what is owed to them, and the beneficiaries of the estate can only get what is leftover.

There is a way that a beneficiary might be able to save a particular piece of property from the estate. Once the creditors have filed and the property is in foreclosure, a beneficiary is allowed to file for bankruptcy is his or her own capacity, using a Chapter 13 plan where payments will be structured as debts are reorganized.

There may be personal reasons to save a certain property, such as not wanting to lose a childhood home. If you are facing potential issues as a beneficiary, it is best to get a good probate attorney involved as soon as possible so you can learn your options.

Leave a Reply

Your email address will not be published. Required fields are marked *

Probate Assistance Program
Get your Free Copy Today by Subscribing Below. 

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

Guide to Probate will use the information you provide on this form to be in touch with you and to provide updates and marketing.