Seniors declaring bankruptcy have many concerns. One of the most pressing is how their health or their spouse’s health might affect their case. It is understandable why older adults, especially those facing health concerns that might have driven them to bankruptcy, have concerns about not living long enough to complete their bankruptcy case.
What Happens If You or Your Spouse Dies Midway through Bankruptcy?
According to the Bankruptcy Code, if a married couple files for bankruptcy together and one dies, the bankruptcy case continues. The court liquidates assets and issues discharges as they would have had both spouses survived. This applies to the assets and debts of the deceased spouse’s estate that pass to the living spouse and thus, to the bankruptcy estate.
One thing that might change is if the deceased was the primary earner and the household income changes significantly as a result of his or her death. In these cases, it might be possible to transition a Chapter 13 case to Chapter 7. When only one spouse files and that spouse dies, the case is almost always converted to Chapter 7. The court liquidates assets as they would have been if that person had lived.
If someone dies before the 341 meeting of creditors, the surviving spouse attends the meeting and speaks on behalf of both parties. Even if the surviving spouse was not part of the bankruptcy, the case still continues. Furthermore, the surviving spouse can still speak on behalf of the deceased regarding his or her spouse’s financial situation.
What about Your Home?
One of the greatest concerns many people have after losing their spouse, whether bankruptcy is involved or not, is how they will afford to stay in their homes with a reduction in income. The concern increases for married seniors declaring bankruptcy who die midway through their bankruptcy case.
Surviving spouses on the deed are responsible for keeping up with the mortgage. The mortgage contract is not disqualified because someone on the mortgage dies.
Furthermore, the court protects a surviving spouse from automatic foreclosure. Payments just continue as usual, as long as the surviving spouse can afford to pay. And as long as there is no clause in the mortgage allowing for the lender to take drastic measures.
If the surviving spouse is not on the mortgage, what happens to the house is determined first by the deceased’s last will and testament. In most cases, even when there are no pre-established directives, the surviving spouse inherits that deceased’s spouse’s assets once creditors receive payment. This includes debts such as the mortgage. If there is not enough in the estate, the court will order the house to be sold to satisfy the debt.
It’s important to contact your mortgage lender after your spouse dies to determine what is required of you. This way, you’ll better understand your options and be able to make informed decisions about your situation. Additionally, the Consumer Financial Protection Bureau has put rules in place to better protect widowed spouses.
Seniors Declaring Bankruptcy Have a Lot to Consider
Seniors declaring bankruptcy have enough to worry about. They shouldn’t have to wonder if they’ll lose their homes or other assets if their spouses die unexpectedly during the case. Working with an experienced attorney means someone will be there to explain any twists and turns. An experienced attorney offers protection from the unexpected.