According to federal bankruptcy laws, a decedent's estate is not considered an individual, so it's not eligible to file for bankruptcy. Likewise, the executor of the decedent's estate may not file for bankruptcy on the estate's behalf.
Settling the Estate
Generally, when a person dies, creditors file claims with the court for payment of outstanding debts. The court then liquidates any assets that belong to the estate to pay off the debts. If anything remains, it goes to the person's heirs.
Continuing Bankruptcy Estate
If a person dies when a bankruptcy is in progress, the bankruptcy court can continue the case. Under Chapter 7 bankruptcy, the court sells the deceased's property to pay the debts owed to creditors. Under Chapter 13, the court works with the administrator of the estate and the deceased's creditors to complete a payment plan.
Beneficiary Filing for Bankruptcy
When a beneficiary inherits property that can be foreclosed on, he can declare bankruptcy on his own as long as he otherwise qualifies to file for Chapter 13 bankruptcy. Filing for bankruptcy stops the foreclosure sale and allows the beneficiary to set up a Chapter 13 plan to repay all or part of the delinquent debt.
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