Here’s what you need to know.
Before deciding to file, it’s essential to understand the concept of an estate in the context of bankruptcy. An estate refers to the total sum of a deceased person’s assets and liabilities at the time of their death. When someone passes away, their estate becomes a separate legal entity. The executor is responsible for managing and distributing the assets and settling outstanding debts in the estate.
While an individual or a business entity may file for various types of bankruptcy, the options available to an estate are more limited. The two primary types of bankruptcy that an estate may pursue are:
Chapter 7 Bankruptcy: Chapter 7 bankruptcy is also known as liquidation bankruptcy. In Chapter 7, the debtor’s non-exempt assets are sold (liquidated) to repay creditors. All qualifying debts are discharged.
When someone passes away, their estate may file for Chapter 7 bankruptcy if there are insufficient assets to cover outstanding debts. The bankruptcy trustee appointed to oversee the case will liquidate the estate’s assets. They’ll also distribute the proceeds to creditors and discharge remaining eligible debts.
Chapter 11 Bankruptcy: Chapter 11 bankruptcy, often referred to as reorganization bankruptcy, allows businesses and individuals to restructure their debts while continuing operations. It’s less common for estates. However, Chapter 11 bankruptcy may be pursued if the estate is financially complex. It’s also an option if it’s in the best interest of creditors to reorganize debt repayment. The estate’s representative, such as the executor or administrator, would need to file for Chapter 11 bankruptcy on behalf of the estate.
Several factors may influence whether an estate decides to file for bankruptcy:
Insolvency: If the estate lacks sufficient assets to cover its debts, filing for bankruptcy may be a viable option. It will distribute assets among creditors and obtain debt relief.
Complex Debts: In cases where the deceased individual left behind complex financial obligations or legal disputes, bankruptcy may provide a structured process for resolving creditors’ claims and settling estate matters.
Creditor Actions: Have creditors initiated legal proceedings against the estate or pursue aggressive collection efforts? Bankruptcy may offer protection through an automatic stay, which temporarily halts creditor actions while the bankruptcy case is pending.
An estate can file for bankruptcy under certain circumstances. However, the decision to do so requires careful consideration of various factors and everyone’s situation is different. Are you involved in managing an estate facing financial challenges or considering bankruptcy options? Seeking guidance from a knowledgeable attorney specializing in bankruptcy and estate law is crucial. An experienced attorney can assess the unique circumstances of the estate, explain available options, and guide you through the bankruptcy process, ensuring the best possible outcome for all parties involved.
If you’d like to learn more about how bankruptcy affects an estate or you’re ready to get started with filing, contact the Law Offices of Robert M. Geller at (813) 254-5696 to schedule a free consultation with an experienced attorney.
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