Jane declares personal bankruptcy. She owes her creditors $1,000,000.

Before bankruptcy proceedings have begun, Jane dies. In her will, she leaves her entire estate to her daughter Sarah. Her estate is valued at $500,000.

Who gets the money — Sarah, or Jane's creditors?

  • 3
    And where do Sarah and Jane live? – Dale M Sep 5 '16 at 20:22
  • Also, if bankruptcy proceedings have not begun at the time of Jane's death, in what sense has she "declared bankruptcy"? What specific steps has she completed? – Nate Eldredge Sep 5 '16 at 20:29
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    That said, I can't think of any reason why Sarah should expect to get much. If Jane had completed bankruptcy before dying, her assets would have gone to her creditors (minus any assets exempt from bankruptcy under local law), leaving little for Sarah to inherit. If Jane hadn't declared bankruptcy at all, her estate is liable for her debts, and would have to settle them before turning the proceeds over to the heir - so again Sarah is left with nothing. I can't see why Jane dying in the middle should give a significantly different result from either of these cases. – Nate Eldredge Sep 5 '16 at 20:31
  • What about accounts where Sarah is the beneficiary (life insurance)? Normally aren't those not considered part of the estate? – mkennedy Sep 5 '16 at 22:41
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    Possible duplicate of What happens to the debts when someone dies? – sleske Sep 12 '16 at 7:06

In most cases - the deceased estate will pay secured creditors, unsecured creditors, then beneficiaries.

This would depend on any other entities that may have been created by the deceased in anticipation of this, but otherwise, Jane will get nothing.

  • If Sarah has filed a Ch. 7 petition (and that is all) or Aus. equivalent, and the $500,000 is exempt property such as a home, is your answer the same? – user6726 Sep 6 '16 at 15:37

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