Dead Debtor Can’t Convert Chapter 13 Case to Chapter 7

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

The Chapter 13 case of a deceased debtor can’t be converted to Chapter 7, an Ohio bankruptcy court ruled Oct. 3 ( In re Moore , 2017 BL 354987, Bankr. N.D. Ohio, 15-62639, 10/3/17 ).

The deceased debtor wasn’t eligible to be a debtor in Chapter 7, the opinion of Judge Russ Kendig, of the U.S. Bankruptcy Court for the Northern District of Ohio, found. Kendig severed the case from that of the surviving spouse, who was allowed to convert his case.

Mark and Lisa Moore filed a joint Chapter 13 case in 2015. In Chapter 13, individuals receiving regular income may obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

The court confirmed the debtors’ plan in July 2016. Lisa died less than a month later.

Without Lisa’s income, Mark couldn’t complete the plan payments, so he filed a motion to convert the case to Chapter 7.

Mark objected when the court later notified him that it intended to sever the case and reconvert Lisa’s case to Chapter 13.

Because of “the dearth of direct guidance in the Bankruptcy Code” regarding “dead debtor issues,” the “case law looks like a seismograph needle in the middle of an earthquake,” the court said.

Under Bankruptcy Rule 1016, a case may be dismissed on the death or incompetency of a debtor, or it may proceed if “further administration is possible and in the best interest of the parties,” the court said.

In Chapter 13 cases, generally the case will be dismissed because of the inability to fund the plan, the court said.

The court also noted that a decedent’s estate is not a person, and therefore ineligible to be a Chapter 7 debtor under Section 1307(g) of the Bankruptcy Code.

The “entire structure of probate law is designed to address the assets and liabilities of a decedent’s estate, making bankruptcy adjustment unnecessary,” the court said.

Similarly, a dead debtor doesn’t need the benefit of a fresh start, one of bankruptcy’s principal purposes, it said.

Thomas Karl Mast, Wooster, Ohio, represented Mark Moore Sr.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Bankruptcy on Bloomberg Law