§ 128.1     Death or Incompetency of Debtor
Revised:  June 9, 2004
CASES UPDATED: January 24, 2020
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 128.1, at ¶ ____, LundinOnChapter13.com (last visited __________).

Bankruptcy Rule 1016 provides that the death or incompetency of a Chapter 13 debtor does not automatically end the case, but “the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.”1 As amended, effective December 1, 2002, Bankruptcy Rule 1004.1 provides, “The court shall appoint a guardian ad litem for an infant or incompetent person who is a debtor and is not otherwise represented or shall make any other order to protect the infant or incompetent debtor.”2


The death or incapacity of a wage-earning debtor typically marks the end of the Chapter 13 case because there is no longer a source for funding the plan. If death or incapacity occurs before confirmation, it may be difficult or impossible to prove the conditions for confirmation—for example, that the debtor will be able to make the payments called for by the plan as required by the feasibility test in § 1325(a)(6).3 However, death or incapacity of the debtor after confirmation might be a ground for postconfirmation modification of the plan to reduce payments to creditors4 or for a hardship discharge under § 1328(b).5


Before dismissing a Chapter 13 case at the death of the debtor after confirmation, counsel should investigate whether administration of the decedent’s estate is best accomplished under state law or through completion of the Chapter 13 case.6 When the debtor experienced substantial postconfirmation medical bills during a last illness, management of those debts by conversion to Chapter 7 may be advantageous to heirs or other parties in interest.7


Imagine, for example, a Chapter 13 debtor with substantial unsecured debts and a $50,000 life insurance policy with no cash value. Assume that the debtor dies after confirmation and more than 180 days after the petition.8 The heirs of the debtor who stand to inherit the $50,000 insurance proceeds want to maximize the discharge of debt in the Chapter 13 case. A hardship discharge in the Chapter 13 case or conversion to Chapter 7 might accomplish discharge of the prepetition debt. State descent and distribution law might subject some or all of the insurance proceeds to the claims of creditors.


One reported decision seems to hold that the bankruptcy court is without discretion to do anything but dismiss a Chapter 13 case when the debtor dies before confirmation of a plan. In In re Spiser,9 both debtors in a joint Chapter 13 case died after the meeting of creditors but before confirmation of a plan. The deceased debtors’ attorney converted the case to Chapter 7 and sought to avoid liens on the debtors’ homestead in the Chapter 7 case. The Chapter 7 trustee moved to vacate the order of conversion and to dismiss the Chapter 7 case.


The bankruptcy court acknowledged that Bankruptcy Rule 1016 provides that the death of a Chapter 13 debtor does not automatically abate administration of the case. But because only an individual with regular income may be a debtor in a Chapter 13 case,10 “with the deaths of both Mr. and Mrs. Spiser, there was no ‘individual’ remaining in the Chapter 13 case; only the probate estates of Mr. and Mrs. Spiser remained. A probate estate is not a ‘debtor’ eligible to convert the case to Chapter 7 under § 1307(a).”11 The court vacated the order of conversion and then dismissed the Chapter 13 case because no individual remained to act as the debtor or to generate income to fund a plan. The court read Bankruptcy Rule 1016 to support this outcome:

That rule provides that in the event of the death of a chapter 13 debtor the case may be dismissed or, if further administration is possible, the case may be concluded in the same manner as though the death had not occurred. The term “further administration” implies that the case would be carried to its normal conclusion with payments to the creditors as provided in the confirmed plan, rather than conversion of the case to Chapter 7.12

Parts of the Spiser opinion can be read to preclude eligibility for Chapter 13 relief upon the death of all of the debtors. Other parts of Spiser analyze whether the Chapter 13 case can continue based on whether the decedents’ estates could fund a Chapter 13 plan. Spiser extends ambiguously to the issue (not before the court) whether a Chapter 13 case could continue if the debtors died after confirmation.


Spiser should be contrasted with the situation where one spouse dies during a joint Chapter 13 case. In In re Estrada,13 one spouse in a joint Chapter 7 case was permitted to separately convert to Chapter 13. The surviving spouse’s Chapter 7 case was never substantively consolidated with the deceased spouse’s case under § 302(b) of the Code. The surviving spouse had substantial separate assets as the beneficiary of life insurance policies on her now deceased spouse. Conversion from Chapter 7 to Chapter 13 permitted the surviving spouse to manage her separate debts and her separate assets, leaving her deceased spouse’s separate debts to be discharged in the Chapter 7 case.


One reported decision refused a surviving spouse’s effort to cash out a joint Chapter 13 plan using the proceeds of life insurance. In In re Guentert,14 one debtor died approximately 23 months into the Chapter 13 case. The confirmed plan called for 45 percent payment of unsecured claims. The surviving spouse received life insurance proceeds and moved to modify to pay off the 45 percent plan with a lump-sum portion of the life insurance proceeds. The bankruptcy court sustained the trustee’s objection on the ground that the modified plan had to satisfy the disposable income test in § 1325(b)15 and thus the surviving spouse had to continue making payments for at least three years or pay 100 percent of unsecured claims.16 The court noted that the life insurance proceeds became property of the surviving spouse’s Chapter 13 estate and further hearing would be necessary to determine whether the debtor could exempt all or any portion of those proceeds.17 The court observed that the only way for the surviving spouse to complete the plan short of 100 percent payment or 36 months would be to qualify for hardship discharge under § 1328(b).18


Controversies among executors, legatees and devisees have surfaced in reported Chapter 13 cases. In Querner v. Querner (In re Querner),19 the U.S. Court of Appeals for the Fifth Circuit held that a bankruptcy court correctly exercised its discretion under Bankruptcy Rule 1016 to continue jurisdiction over a Chapter 13 debtor’s property after the debtor’s death; however, the bankruptcy court improperly exercised jurisdiction over the probate estate of the deceased debtor after the Chapter 13 case was closed. Querner involved a dispute between the co-executors of a deceased Chapter 13 debtor’s probate estate. The Fifth Circuit held that this dispute, after the closing of the Chapter 13 case, was best resolved by a state probate court, not by the bankruptcy court.


In In re Kjellsen,20 the bankruptcy court had to resolve which competing fiduciary representative of an incompetent debtor had authority to file a Chapter 13 case. The Chapter 13 petition was signed by an incompetent debtor and by the debtor’s daughter acting under a durable power of attorney that had been partially revoked by a state court. The debtor was also represented by a guardian appointed by that state court. The state court revoked the portion of the daughter’s power of attorney that dealt with control of the debtor’s property. Responsibility for the debtor’s property was vested in the separate guardian.


The bankruptcy court found that revocation of the daughter’s control of the debtor’s property did not upset the daughter’s authority “to continue acting as Debtor’s personal caretaker and to make personal decisions on Debtor’s behalf.”21 The court held that bankruptcy was a “personal action” that the daughter could undertake on behalf of the debtor pursuant to the durable power of attorney, notwithstanding the limitations ordered by the state court in favor of the separate guardian.


Kjellsen demonstrates that bankruptcy courts will be drawn into the traditional sphere of state probate courts at least to determine whether guardians, conservators, “next friends,” and family members have authority to commence or continue a Chapter 13 case on behalf of a deceased or incompetent debtor.22 Querner indicates there are limits on this intrusion.


It is too early to tell what effect the 2002 amendments to Bankruptcy Rule 1004.1 will have on the administration of Chapter 13 cases when the debtor becomes incompetent during the case. New Bankruptcy Rule 1004.1 seems to mandate that the bankruptcy court appoint a guardian ad litem for a Chapter 13 debtor who becomes incompetent during the case and is “not otherwise represented.”23 The Rule might be interpreted as some encouragement to continue the administration of Chapter 13 cases when the debtor becomes incompetent. Because Rule 1004.1 is derived from Rule 17 of the Federal Rules of Civil Procedure, bankruptcy courts can be expected to look to cases interpreting Rule 17(c) for guidance with respect to what a guardian ad litem can do in a Chapter 13 case on behalf of an incompetent debtor.


1  Fed. R. Bankr. P. 1016. For discussion of eligibility of a decedent’s estate, see § 7.8 [ Eligibility of a Decedent’s Estate ] § 10.8  Eligibility of a Decedent’s Estate. For discussion of eligibility of an incompetent, see § 7.9 [ Eligibility of an Incompetent and Petitions on Behalf of Others ] § 10.9  Petitions on Behalf of Others: Incompetents, Next Friends, Powers of Attorney and the Like.


2  Fed. R. Bankr. P. 1004.1.


3  See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1  Able to Make Payments and Comply with Plan.


4  See § 265.1 [ To Decrease Payments to Creditors ] § 127.8  To Decrease Payments to Creditors. See, e.g., In re Baker, 194 B.R. 881 (Bankr. S.D. Cal. 1996) (Debtor permitted to modify plan after confirmation to reduce payments to unsecured creditors from 100% to 25% where codebtor spouse passed away.).


5  See discussion of hardship discharge beginning at § 160.1  In General.


6  See also §§ 7.8 [ Eligibility of a Decedent’s Estate ] § 10.8  Eligibility of a Decedent’s Estate and 353.1 [ Circumstances for Which the Debtor Should Not Justly Be Held Accountable ] § 160.3  Circumstances for Which the Debtor Should Not Justly Be Held Accountable.


7  11 U.S.C. § 348(d) provides that, upon conversion from Chapter 13 to Chapter 7, claims that “arise after the order for relief but before conversion . . . shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition.” Trapping postpetition medical bills in the Chapter 7 case could relieve the decedent’s estate from responsibility for those expenses. See §§ 314.1 [ On Postpetition Claims ] § 142.5  On Postpetition Claims and 350.1 [ Postpetition Claims ] § 158.6  Postpetition Claims.


8  See 11 U.S.C. § 541(a)(5).


9  232 B.R. 669 (Bankr. N.D. Tex. 1999).


10  11 U.S.C. § 109(e), discussed in §§ 5.1 [ Summary of Eligibility Requirements ] § 9.1  Summary of Eligibility Requirements, 7.1 [ Debtor Must Be an Individual ] § 10.1  Debtor Must Be an Individual; Spouses Allowed, 7.8 [ Eligibility of a Decedent’s Estate ] § 10.8  Eligibility of a Decedent’s Estate and 8.2 [ When Must Debtor Have Regular Income? ] § 11.2  When Must Debtor Have Regular Income?.


11  232 B.R. at 673.


12  232 B.R. at 673.


13  224 B.R. 132 (Bankr. S.D. Cal. 1998).


14  206 B.R. 958 (Bankr. W.D. Mo. 1997).


15  A controversial holding. See § 255.1 [ Does Disposable Income Test Apply? ] § 126.3  Does Disposable Income Test Apply?.


16  See discussion of disposable income test before BAPCPA beginning at § 91.1  In General.


17  See § 46.10  Insurance Policies and Proceeds, § 90.2  Exemption Issues§ 90.3  Exclusions and Exemptions after BAPCPA§ 126.2  Application of Tests for Confirmation and § 126.6  Modification after Confirmation after BAPCPA.


18  See discussion of hardship discharge beginning at § 160.1  In General.


19  7 F.3d 1199 (5th Cir. 1993).


20  155 B.R. 1013 (Bankr. D.S.D. 1993).


21  155 B.R. at 1021.


22  See also §§ 7.8 [ Eligibility of a Decedent’s Estate ] § 10.8  Eligibility of a Decedent’s Estate and 7.9 [ Eligibility of an Incompetent and Petitions on Behalf of Others ] § 10.9  Petitions on Behalf of Others: Incompetents, Next Friends, Powers of Attorney and the Like.


23  See § 7.9 [ Eligibility of an Incompetent and Petitions on Behalf of Others ] § 10.9  Petitions on Behalf of Others: Incompetents, Next Friends, Powers of Attorney and the Like.