Does Bankruptcy Occur During Probate?

When you pass away, your assets will undergo a process known as probate and your estate will be responsible for paying for any outstanding debts. However, even after your debt, there are some ways that bankruptcy might affect your estate. This is something you will want to bring up with your attorney.

The Rights of the Estate

Your estate does not have the right to file for bankruptcy on your behalf. The purpose of bankruptcy is to allow a debtor to have a fresh start, so it does not apply to the deceased. Also, under Chapter 7, your assets would be used to pay down debts. However, during the probate process, your estate will be used to pay debts, and your remaining assets will be distributed to your heirs. 

If you have a mortgage, property taxes, storage fees, and utility fees, these will all be covered under "administrative fees" and will continue to be paid throughout the probate process to the fullest extent possible. Other debts will be considered "final bills."

Final Bills

Your final bills can include other debts such as income taxes, loans against your life insurance, credit card bills, and cell phone bills. While these debts are prioritized less than other debts, they may still be paid off and leave less money in your inheritance. The executor will handle these debts in the process of settling the estate.

You may have some assets that will have loans attached to them. The executor will need to make decisions on whether these loans will be paid off or what will be done with the property. For example, if your car loan is almost paid off, the executor might use your assets to pay off the remainder of the loan, and the car may be given to an heir.

The beneficiaries may be paying for bills throughout the process of probate. If this is the case, these beneficiaries must be compensated. However, if there is a specific beneficiary who has had a home left to them and the beneficiary intends to take control of the mortgage, they will not have to be reimbursed.

Bankruptcy and Your Estate

If you had already filed for Chapter 7, the process will continue as normal. If you have filed for Chapter 13 bankruptcy, the process will only continue if this would be in the best interests of all parties. However, with each of these options, an attorney will be able to guide your beneficiaries.

To learn more, contact a probate attorney.