What is a Bankruptcy Estate (Individual)?

During the process of a bankruptcy, an estate is formed to distribute an individual’s assets while also paying off their debts. This separate entity is created with an additional “Estate EIN” to distinguish itself from the individual declaring bankruptcy; it’s no longer under the individual’s SSN or ITIN. Once the process of bankruptcy has been completed, the remaining debts will be dissolved.

The process of a bankruptcy for an individual is similar to that of a corporation, insofar as the individual’s assets are going to be paid out to creditors on a hierarchy. Debts to the government, such as tax debts, are generally paid first, after which private creditors are paid. The goal will be to pay as many creditors as possible fairly before the individual’s debts are dissolved.

Once the individual’s debts are dissolved, the bankruptcy estate will also be dissolved, and the individual will be able to move forward with repairing their financial situation and their credit. Certain assets will not be included in bankruptcy, most commonly a primary vehicle and primary home. In order to properly run the necessary operations of an Estate, every type of Estate of Deceased must obtain a Federal Tax ID. You can this Estate ID using the official online Estate Tax ID / EIN Number Application.


Written by Maurice Mallory