By Kitty J. Lin
The death of a loved one affects the survivors both mentally and financially. There may be additional stress if the beneficiaries of the deceased inherit property that is heavily encumbered and may be foreclosed by a creditor. If you are a beneficiary of an estate and mortgage payments were prior to your loved one dying, can the executor of the estate can file for bankruptcy on the deceased person’s behalf in order to stop a foreclosure sale. The answer to this question would be dependent on how the bankruptcy is filed.
When a person dies, all their property (including personal and real property, tangible and intangible assets and all debts associated with the person) belongs to a newly created “estate.” A decedent’s estate is not eligible to file a Chapter 13 bankruptcy petition because it is not considered an “individual” as defined in 11 U.S.C. §109. A person that has already passed away also cannot file for bankruptcy. Therefore, an executor or personal representative of the decedent’s estate cannot file for bankruptcy on the decedent’s or the estate’s behalf.
When the estate is created, creditors will file claims with the court regarding what is owed to them. If the assets exceed the debts, then the beneficiaries receive whatever is leftover according to the wishes of the deceased. If the debts exceed the assets, the assets are liquidated to pay the debt off and the remaining debt will be written or charged off. The beneficiaries will not have anything to inherit and there is no need to file for bankruptcy for the estate.
However, if the beneficiaries want to save a particular piece of property from foreclosure and the property is underwater, the beneficiaries would have standing to file for bankruptcy in his or her individual capacity if they are otherwise eligible to file for Chapter 13 bankruptcy.
So why file bankruptcy? If they stand to inherit any real estate that is about to be foreclosed, filing for bankruptcy will stop the foreclosure sale and help the beneficiary reorganize the debts by paying the mixed mortgage payments in a Chapter 13 plan. This will help them keep the property in the long term if they are able to afford their regular monthly mortgage and the Chapter 13 plan payment to pay arrears. The beneficiaries may want to keep the property in the estate for many reasons. Maybe it is their childhood home and they want to preserve it for future generations. Or it is the house they currently live in and if foreclosed, they will have nowhere else to go. Whatever the reasons are, filing for a Chapter 13 bankruptcy will help them save their homes. For more information about estates and filing bankruptcy, please consult an experienced bankruptcy lawyer in your state.