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Filing for bankruptcy in Massachusetts impacts numerous aspects of your life, including inheritances and estate plans. Generally, filing for bankruptcy gives you a fresh start to get back on your feet after suffering through a financial setback. Before proceeding with a bankruptcy filing, you should talk with a Massachusetts bankruptcy attorney about the consequences of filing bankruptcy. This blog discusses how filing for bankruptcy can affect your estate plan.
What Happens if I Die Before My Bankruptcy Case Is Complete?
If you die before your bankruptcy is complete, the effect on your estate depends on the chapter of bankruptcy filed.
Chapter 7 Bankruptcy
A Chapter 7 case would move forward even after your death. If you have not received a bankruptcy discharge, the Chapter 7 trustee can seize your assets to sell. The trustee uses the proceeds to pay your debts. Any money or property remaining after the debts are paid is distributed to your heirs according to your Will and estate plan. Depending on your debts, the property in your estate may not pay the debts in full. If not, your heirs might receive nothing from your estate.
Chapter 13 Bankruptcy
The issue is more complicated if you are in Chapter 13 when you die. A Chapter 13 plan is a court-approved repayment plan. You must complete the plan before you receive a discharge. Most Chapter 13 plans have 60-month payment terms, but some debtors may qualify for a 36-month plan.
The personal representative of your estate has several options. They can petition the court to convert the Chapter 13 case into a Chapter 7 case. If so, the process would proceed as above.
However, the estate may have the option of paying off the Chapter 13 plan, having it dismissed, or petitioning for a hardship discharge. The facts of the case determine the options available to the estate and heirs, so it is best to seek legal advice from a bankruptcy attorney before proceeding.
Debts Impact Your Estate Plan Regardless of Whether Your File for Bankruptcy
A person’s debts must be paid from their estate. Creditors can file claims for payment from the estate. Valid debts are paid from the assets and property in the estate. Therefore, if you die with substantial debts, your heirs will not be responsible for paying the debts. However, the property they would receive may be liquidated and used to pay those debts.
However, bankruptcy can eliminate your debts now so that your estate remains intact for your heirs. When you file for bankruptcy, bankruptcy exemptions protect the specific amounts of equity in certain assets. Exempt property is not subject to being sold to repay your debts. Therefore, you can get rid of debts while protecting your assets.
Before attempting bankruptcy, it is best to talk with a bankruptcy lawyer. Bankruptcy exemptions can be confusing. You can choose between federal and state bankruptcy exemptions if you meet the requirements. Your choice could significantly affect how much of your property is protected in bankruptcy.
Contact Our Massachusetts Bankruptcy Attorneys for More Information
Protecting your legacy is an important priority for many people. Call us to schedule a consultation with our Massachusetts bankruptcy lawyers to discuss options for dealing with debt problems that protect your assets and property.