Can You File Bankruptcy on Funeral Expenses?

A debtor can include funeral expenses in a bankruptcy -- if the debtor paid the funeral costs with a loan that still has a balance. Bankruptcy requires a listing of all debts, including promissory notes, installment loans or credit cards used for funeral expenses. Funeral expenses paid in full are a non-issue for bankruptcy. Some people incur extensive funeral debt through high-interest loans arranged by funeral homes.

Chapter 7 Bankruptcy

A debtor could pay for a funeral on credit and eliminate the debt within several months through Chapter 7. However, filing for bankruptcy to wipe out debt from a funeral is not a wise strategy. The Federal Trade Commission reports that bankruptcy has a devastating effect on credit and is best avoided. Chapter 7 has income limits that are set by individual states. Usually, only people with low incomes qualify. Chapter 7 completely wipes out all unsecured debt.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also an option for debtors seeking relief from funeral debt and other debts. Chapter 13 requires a payment plan of three to five years, however, making it a much more difficult process than Chapter 7.

Fraud

Regardless of the type of bankruptcy, the debtor can include only his own debt in the bankruptcy petition. That means, for example, that a family member with funeral debt cannot pass the debt on to a sibling who is about to file for bankruptcy. Attempts to transfer debt in that manner could lead to charges of bankruptcy fraud or a dismissal of the bankruptcy.

Alternatives

Debtors can seek alternatives to bankruptcy for unsecured funeral debt. Debt settlement is one option, with the debtor possibly settling the funeral debt for less than the full balance. SmartMoney reports that credit card companies often settle unsecured debt for 20 to 70 percent of the balance. Before filing for bankruptcy debtors should seek advice from a nonprofit credit counselor. Credit counselors, including those associated with Consumer Credit Counseling Service, offer debt management plans for dealing with excessive unsecured debt, including funeral debt. The counselors can contact individual creditors to establish affordable payment plans over four or five years. Bankruptcy attorneys also can offer advice through initial consultation sessions, which are usually free.