On an issue where the courts are split, Bankruptcy Judge William T. Thurman of Salt Lake City ruled that the estate of a deceased debtor remains eligible for a chapter 13 discharge even though the debtor failed to complete a financial management course.

The debtor confirmed his chapter 13 plan. In the midst of the case, he died before completing a financial management course, but his personal representative continued making plan payments. The personal representative did not file a motion seeking authorization to continue payments.

The trustee filed a notice of completion of plan payments, and the decedent’s personal representative filed a motion to waive the course-completion requirement. The chapter 13 trustee objected.

In his October 30 opinion, Judge Thurman said the courts are divided on the outcome and don’t even agree on the methodology for reaching a result.

Several Code sections are potentially relevant. Section 1328(g)(1) states that the “court shall not grant a discharge under this section to a debtor unless after filing a petition the debtor has completed an instructional course concerning personal financial management described in section 111.”

Under Section 1328(g)(2), the course requirement in subsection (g)(1) does not apply to a debtor described in Section 109(h)(4). The person described in Section 109(h)(4) is someone “whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone.”

Bankruptcy Rule 1016, entitled “Death or Incompetency of Debtor,” provides that “[d]eath or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, 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.” [Emphasis added.]

Judge Thurman cited “several courts” for ruling that the course requirement may be waived if the chapter 13 debtor has died. He agreed with them, observing that “it seems almost certain that death forgives the financial course.”

Judge Thurman said that the courts granting a discharge do not agree on how they reached their conclusions. So, he offered his own two-part test to apply when a debtor is deceased.

First, Judge Thurman said, the court should decide whether the “requirement affect[s] anyone’s interest other than the deceased.” If no one is affected other than the debtor, the requirement is waivable. If others are affected, it is nonwaivable.

In the case at hand, no one else is affected because the course-completion requirement is for “the benefit of the debtor him or herself, in an attempt by Congress to counsel the debtor away from needing to file bankruptcy in the future and to better handle one’s finances.”

Second, is the requirement “personal to the debtor, or could it be performed by someone else?”

Alluding to Bankruptcy Rule 1016 in the case of a deceased debtor, Judge Thurman said that the bankrupt estate “may continue ‘further administration’ by substituting the personal representative for the original deceased debtor.”

Judge Thurman granted the motion to waive the course-completion requirement.

Judge Thurman’s Observation About Best Practices

After the debtor’s death, the personal representative continued making plan payments without direction from the court. Judge Thurman noted that the statute and rules are “silent as to what steps should be taken and what time and what kind of motions are proper.”

Judge Thurman said “it would usually be prudent and proper practice to file such motion [authorizing the executor or personal representative to continue making payments] at the time of death rather than use a wait and see approach.”