In most cases, a person’s debts do not disappear when they pass away. Those debts are owed by and paid from the estate of the deceased person. Family members are usually not required by law to settle a deceased relative’s debts with their own money. If the estate doesn’t have enough money to cover the debt, it usually goes unpaid. There are, however, exceptions to this rule. If you do any of the following, you may be personally liable for the debt:
- are the spouse of the deceased person and live in a community property state like California
- are the surviving spouse of a deceased individual, and live in a state that mandates you to pay certain types of debt, such as some healthcare costs
- were legally liable for the estate’s resolution and failed to observe certain state probate regulations
Consult a lawyer if you’re unsure whether you’re legally obligated to pay a deceased person’s debts with your own money. You may be eligible for free legal assistance from a legal aid agency near you, depending on your income.
Who can pay debts out of the deceased person’s assets?
The executor is responsible for paying the deceased person’s debts. The executor is the person named in a will to carry out the terms of the will following the individual’s death.
If there is no will, the court may appoint an administrator, personal representative, or universal successor to the estate and grant them authority to settle the estate’s issues. In some states, that authority might be delegated to someone not chosen by the court. State law, for example, may set a different method for someone to become the executor of the estate even if the court hasn’t formally appointed them.
Can a debt collector talk to a relative about a deceased person’s debt?
The law protects persons, especially family members, against debt collectors who engage in abusive, unfair, or deceptive debt collection activities.
Collectors can contact the deceased person’s family and discuss outstanding debts under the Fair Debt Collection Practices Act (FDCPA).
- If the deceased was a minor child (under the age of 18), the parent(s) must be notified.
Collectors can also approach anyone with the authority to pay debts with assets from the estate of a deceased person. Debt collectors are prohibited from discussing a deceased person’s debts with anybody else.
If a debt collector contacts a deceased person’s relative, or another person connected to the deceased, what can they talk about?
Collectors can get the name, address, and phone number of the deceased person’s spouse, executor, administrator, or other person with the power to pay the deceased person’s debts by contacting other relatives or people connected to the deceased (who don’t have the power to pay debts from the estate). Collectors can normally only contact these relatives or others once to obtain this information, and they are not allowed to discuss the debt facts.
Collectors can contact the relative or other person again for updated information, or if the relative or other person provided incorrect or incomplete information to the collector. Even then, collectors are prohibited from discussing the debt.
If I have the power to pay a deceased person’s debt, can I stop a debt collector from contacting me about the debt?
Yes, you have the legal right to stop a collection agency from contacting you. Send a letter to the collector to accomplish this. A simple phone call is insufficient. Tell the collector that you don’t want to hear from them again. Make a copy of the letter for your records, then send the original by certified mail with a “return receipt” to prove that the collector received it.
However, even if you cease talking with collectors, the debt will not go away. The debt collectors may still try to collect the debt from the estate or anyone who falls into one of the above categories.
Is anyone responsible for a deceased person’s debt?
In most cases, the estate of the deceased person is responsible for settling any outstanding obligations. The personal representative, executor, or administrator is in charge of the estate’s finances. Any debts are paid from the estate’s funds, not from the individual’s own funds.
What types of debt can be discharged upon death?
What Types of Debts Can Be Forgiven When You Die?
- Debt that is secured. If the dead had a mortgage on her home when she died, whoever inherits the property is accountable for the debt.
- Debt that is not secured. Any unsecured debt, such as a credit card, can only be paid if the estate has sufficient assets.
Do I inherit my parents debt?
Is it possible to inherit debt from your parents? It is debatable. You are not obligated to absorb your parent’s debt if his or her estate is in debt. You have the option of just refusing the bequest. A Licensed Insolvency Trustee, on the other hand, can restructure an estate’s debts, as shown in the following debt narrative, and allow an heir to retrieve a portion of the inheritance.
Isabelle, a pseudonym, found herself in a difficult financial condition after her father died. As the lone heir and executor of the estate, she discovered that her father was concealing serious financial problems that could jeopardize her fortune. She was burdened by the fact that, in addition to grieving, she had to settle an insolvent estate in which the obligations outweighed the assets.
Isabelle was going through a very trying period in her life. She had to balance the stress and emotional toll of losing a parent with complex administrative tasks, such as liquidating assets, repaying debts, and paying out a life insurance policy. She is concerned that her inheritance will put her in debt.
Laurier Richard, a BDO Licensed Insolvency Trustee in Quebec City who is well known in the community for being a courteous and experienced debt professional, was recommended by a friend. Laurier shared his debt tale with us because he believes it will help other people who are debating whether bankruptcy or a consumer proposal is the best way to settle inheritance debts.
Isabelle isn’t the only one who feels this way. After a parent passes away, many people are left with their parent’s debt. In addition, senior indebtedness is on the rise. According to the BDO Affordability Index, 55% of Canadian seniors are in debt, with 30% having unsecured debt in excess of $30,000.
“It’s vital to keep in mind that you don’t always inherit debt. You must decide whether or not you want to inherit debt. Certain property, investments, or other assets may be passed down to you as an heir, but you will also be responsible for any obligations that are not listed in the will. It’s why it’s critical to assess an estate’s assets and liabilities before accepting an inheritance.”
There’s more, though. When elder children are uninformed of their parents’ financial challenges, such as coping with mortgages, home equity loans, credit card debt, vehicle loans, medical bills, and so on, inheritance issues are exacerbated. Isabelle’s father never mentioned his financial situation. And no one was aware of his financial difficulties.
Isabelle’s anguish was compounded by the fact that her father had to face this financial load in quiet. Laurier recalls, “However, her reaction to this news was really healthy.” “She was able to tell the difference between her father’s memories and his financial situation with ease.” ‘My father is my father, his debts are simply debts,’ she used to say.
Isabelle was nervous and apprehensive about her responsibilities as executor when she arrived at BDO’s Quebec City office. Her father’s debts outweighed his assets, and a notary had already begun an inventory of the estate. She was also apprehensive about depositing the check from her father’s life insurance policy. Is she instantly responsible for all of his debts if she cashes this check?
Laurier was able to calm her nerves. To begin with, she was able to deposit the check from her father’s life insurance policy without difficulty.
“Many executors and beneficiaries are hesitant to get life insurance policies. If the estate is in debt, there is a prevalent misperception that creditors will have access to these funds. That is not the case. In most circumstances, a beneficiary is named on a life insurance policy. Creditors are unable to establish a claim on these money unless the policy identifies the estate as beneficiary rather than a person.”
As a result, Isabelle could deposit her check and the estate’s debts could be dealt with separately.
When an estate’s debts outnumber its assets, a Licensed Insolvency Trustee (LIT) can be extremely beneficial. An LIT can assist you in determining your options as an heir or executor, as well as finding solutions to your inheritance debts.
Isabelle’s father’s estate may be divided as follows: assets (home and vehicles) were around $50,000, while unsecured debts reached around $80,000. (lines of credit and credit card bills).
Isabelle was presented with two options by Laurier. They have the option of declaring the estate insolvent or submitting a consumer request. The sale of the estate’s assets would not be enough to pay the creditors in the event of bankruptcy, but the consumer proposal may renegotiate the estate’s debts while also allowing Isabelle to profit from the sale of her father’s assets.
A consumer proposal is preferable to bankruptcy because it allows you to maintain your assets separate from your debts. “That’s why, when filing a consumer proposal, many homeowners don’t have to worry about losing their homes.” Laurier argues, “We can renegotiate their obligations and protect their assets.”
Laurier was eventually able to reduce her late father’s debts from $80,000 to $30,000, a savings of more than 60%. Isabelle was able to pay off her inheritance bills and even keep a portion of the proceeds after selling the estate’s assets for around $50,000. She felt a sense of relief. Her responsibilities as sole executor were relieved by the consumer proposition. She had the impression that her father would be relieved as well.
Do you have any inquiries regarding debt reduction options? There is reliable guidance accessible. Make an appointment with a debt expert today for a free, no-obligation consultation.
What happens when someone dies with debt and no assets?
If you have any credit card accounts with a co-owner, the co-owner is responsible for any account balance.
Keep in mind that a joint owner is not the same as an authorized user who has access to your credit card. Your credit card debt is not the responsibility of an authorized user. If you only have credit cards in your name, the credit card companies can file a claim with your estate to be compensated.
“The debt will die with the debtor if there is no estate, no will, and no assets—or not enough to satisfy these debts after death,” Tayne explains. “Children or other relatives have no obligation to pay the debts.”
What loans are forgiven at death?
Remember how we talked about using your estate to pay off debt? Your estate may not always be sufficient to pay off your debts. If you don’t have enough assets to cover your debt after you die, here’s what happens:
There is a certain order in which creditors (the people you owe money to) are paid in “insolvent estates” (those where the debt exceeds the value of the assets), which varies by state. The type of debt you have determines whether you go through this process: secured or unsecured.
Secured debt (such as mortgages, auto loans, and other forms of secured debt) is backed by assets that are often sold or repossessed to repay the lender. The lender doesn’t have that protection with unsecured debt (credit cards, personal loans, medical bills, and utilities), thus these expenses often go unpaid if there isn’t enough money to cover them.
However, each type of debt has its own set of laws, so let’s take a look at each one separately.
Medical Bills:
Although this is the most difficult debt to manage, medical costs usually take precedence in the probate procedure in most states. It’s crucial to remember that if you received Medicaid from the age of 55 until your death, the state may come after you for those payments, or there may already be a lien on your home (meaning they’ll get a cut of the sale proceeds). Because medical debt is so complicated and varies depending on where you reside, it’s essential to seek legal advice.
Credit Cards:
If the credit card has a shared account holder, that person is accountable for the payments and any debt owed on the card. (This does not include cardholders who are permitted to use their cards.) The estate is responsible for paying off the card debt if no one else’s name is posted on the account. If the estate doesn’t have enough money to cover the debt, creditors will usually take a loss and write off the debt.
Mortgages:
The remaining mortgage is the responsibility of co-owners or inheritors, but they are just needed to make monthly payments and are not expected to pay off the entire mortgage at once. They can also choose to sell the property in order to avoid foreclosure.
Home Equity Loans:
In contrast to a traditional mortgage, if someone inherits a home with a home equity loan, they may be obliged to repay the amount immediately, which normally necessitates the sale of the home. However, you don’t have to die for a home equity loan to go bad. Borrowing against your property beyond the first mortgage is never a good idea, so save your heirs the trouble and avoid home equity loans altogether.
Car Loans:
Your assets can be used to cover auto debts, just like any other secured debt, but the lender has the right to confiscate the car if there isn’t enough money in the estate. Otherwise, whoever inherits the car can either keep making payments or sell it to pay off the debt.
Student Loans:
When you die, your federal student loans are forgiven. Parent PLUS Loans, which are forgiven if either the parent or the student dies, are included in this category. Private student loans, on the other hand, are not forgiven and must be paid back from the estate of the deceased. However, if there isn’t enough money in the estate to pay off the student loans, they are normally left unpaid.
Can debt collectors go after family?
Even if you are not legally bound to pay a loved one’s debts, you or your family members may get calls from collection agencies requesting payment.
If you discover that a debt collection agency is harassing family members or abusing the law, write or have an attorney write a “Cease and Desist” letter on your behalf. This letter basically tells a creditor to cease contacting you or your family members.
Prepare to submit complaints against abusive collection agencies if required. Debt collectors are not permitted to contact you or your family about unpaid obligations. They’re also not permitted to call at specific hours of the day, and they’re not allowed to contact you at work if you’ve indicated that you don’t want to accept calls.
Your relatives shouldn’t have to cope with debt collectors contacting them. Creditors aren’t even allowed to communicate to your relatives, friends, or neighbors about your debts under the Fair Debt Collection Practices Act (FDCPA).
So, what should you do if a debt collector calls to demand payment for a family member’s bills?
The Federal Trade Commission urges consumers in one of its consumer alerts not to give debt collectors their personal information, such as bank account information or Social Security numbers, when they say that a deceased relative owes money. Some of the callers could be scammers who have been scouring the obituaries for ways to steal people’s identities.
How long do creditors have to collect after death?
Notifying potential creditors of an individual’s death is a required step in the probate procedure in California. In order to file a probate claim in California, the executor of an estate must:
Creditors have 60 days from the moment an estate executor informs them that the estate is in probate to bring a claim. Creditors have four months to act after an estate representative is appointed by a California probate court if the decedent did not name an executor in their will or trust.
While creditors are given first priority in claiming a decedent’s assets, heirs cannot be held financially liable for the obligations of the deceased. Creditor claims are handled by the estate of a deceased person, not the heirs.
Does debt go to next of kin?
Unpaid debts do not simply vanish when someone passes away. It becomes a part of their personal property. Except when they own the loan, family members and next of kin will not inherit any of the outstanding debt. As a result, they can be a crucial component of estate planning.
Who is responsible for credit card debt after death?
Before any assets are handed to your heirs or surviving spouse, any debt you leave behind must be settled. Debts are paid from your estate, which is the total of all of your assets at the time of your death. Your estate’s assets are used by the executor to pay off your outstanding debts. The executor may be someone you named in your will or estate plan, or someone appointed by probate court if you don’t have a will or estate plan.
Your estate is insolvent if you have more obligations than assets. Whether your credit card debt must be paid by family members in this circumstance is determined by a number of variables.
After you die, anyone who is a joint account holder on your credit cards may be held liable for the debt. Joint account holders apply for credit cards as cosigners or co-borrowers, and the credit card provider looks at both applicants’ credit reports before choosing whether or not to extend credit. The credit card amount must be paid in full by both account holders.
These days, just a few big credit card firms provide joint accounts. If you and your deceased spouse shared a credit card account, it’s more than probable that one of you is an authorized user on the other’s account. (If you’re not sure which group you fall into, call your credit card company.)
You obtain a credit card in your name for the account as an authorized user, and you can use it to make purchases and payments. The principal account holder, on the other hand, is ultimately responsible for the credit card amount. If you’re an authorized user on a deceased person’s account, you’re normally not compelled to pay the outstanding sum.
However, there is one important exception: community property states often make spouses liable for each other’s obligations. Even if you were only an authorized user or the credit card was completely in their name, if you live in a community property state, you may be obligated to pay your spouse’s credit card obligations after their death. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, while Alaska allows spouses to declare their property community. Because laws differ from one community property state to the next, if you live in one of these states, find out what your responsibilities are by consulting an attorney who specializes in estate law in your state.
Do I inherit my spouse’s debt?
No. Debts incurred before to the marriage remain the unique responsibility of the individual, even in common property jurisdictions. So, if your husband is still paying off school loans, for example, you shouldn’t be concerned that once you marry, you’ll be responsible for their debt.
If you took out a joint credit card before getting married, both partners are responsible for the debt. However, being married does not make you inherit debt; it is signing up for a joint account that makes you responsible for the debt.
Do I have to pay my deceased husband’s credit card debt?
The majority of the time, the answer to this question is no. In most cases, family members, including spouses, are not liable for their deceased relatives’ debts. Credit card debts, student loans, vehicle loans, mortgages, and company loans are all included.
Rather, any outstanding debts would be paid from the estate of the deceased person. As a surviving spouse, this means you won’t be responsible for paying anything toward the loan individually. Your spouse’s assets, on the other hand, could be used to pay off loans or other debts they’ve left behind.
Following your spouse’s death, a debt collector may contact you to confirm who they should contact about debt recovery. The executor of the estate is usually the person in charge of this. If your spouse had a will, it’s possible that they named an executor in it. If they don’t want you to be their executor, you can file a petition with the probate court.
Inventorying the deceased person’s assets, estimating their value, notifying creditors of their death, and paying any outstanding bills are all important aspects of the executor’s job. When there are no cash resources available, such as a bank account, the executor can liquidate assets to pay creditors.
What if the estate has no money?
The executor must petition the court to declare the estate insolvent if the estate runs out of money (or liquidable assets) before paying all of the estate’s taxes and debts. No assets will be distributed to beneficiaries, and any creditors who were not paid will stay unpaid.
