SDIL Judge Altenberger Turns Away Grim Reaper Trustee

When a debtor in a chapter 13 case passes this life, the court has discretion to proceed with the case, according to Bankruptcy Rule 1016 “if further administration is possible and in the best interest of the parties”.  Kansas Bankruptcy Attorney Jill Michaux wrote  how this issue touched the family of her client Sharon who succumbed to breast cancer in What Happens When a Chapter 13 Debtor Dies?.

In a Southern District of Illinois case, In re Perkins, the chapter 13 trustee attempted to snatch the possibility of a post-death discharge from the surviving family of a deceased debtor.  The Perkins debtor passed midway through the administration of a confirmed plan.  After death, a representative of the debtor filed an amended plan to shorten the duration of the case and to continue certain payments to creditors, all in an effort to obtain a discharge of any remaining debt after completion of the case .  The trustee opposed the modification and filed a motion to dismiss the case due to the lack of a debtor.

Judge William V. Altenberger resolved the case by deciding two issues of importance in chapter 13.  First, he concluded that a deceased chapter 13 debtor could receive a discharge, notwithstanding the absence of specific statutory language, basing his decision on legislative history to bankruptcy sections 541 and 727 that suggested a deceased chapter 7 debtor could receive a discharge.  See my blog, Death During Chapter 7 Bankruptcy.  Judge Altenberger commented that the position of the trustee to hold otherwise would have the effect of punishing a chapter 13 debtor who tried to repay creditors by denying that debtor the benefit of a discharge which was otherwise available to a deceased chapter 7 debtor.  In chapter 13, unsecured creditors often receive less than full value of their claim but usually more than what would be received in chapter 7.    In probate court, creditors could file claims and seek to collect full payment from assets that might have been exempt from collection in bankruptcy or that might have been acquired after the bankruptcy case was filed.  Consequently, creditors generally prefer state court to either form of bankruptcy.

Next, Judge Altenberger decided that Bankruptcy Rule 1016 permitted the administration of a chapter 13 case after the death of the debtor upon satisfaction of two elements:  possibility of further administration and best interests of the parties.  Although the trustee argued that creditors would always be better off attempting to collect money from whatever inheritance was available in state probate court, the Judge refused to summarily allow creditors to pick the bones clean in state court at the expense of surviving heirs.  Judge Altenberger weighed the evidence and found that the case could and should remain alive in bankruptcy court based on the specific facts of the case at hand.