No, if a person dies with a debt, the loan does not disappear. 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.
Who’s responsible for a deceased person’s debts?
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 next of kin responsible for debt?
If you have an outstanding debt that is secured against a specific asset when you die – such as a car – the lender has the right to repossess that asset if the loan repayments stop. Although your relatives are not technically liable for your debt, if the loan is not returned, the estate may lose the asset.
You can avoid leaving your family with a big financial burden after your death by understanding what debts survive after death and how to manage them.
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.
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.
How do credit card companies know when someone dies?
Credit reporting bureaus often send out deceased notices, which are then shared with other financial institutions. The alert’s objective is to inform these institutions that the individual in issue has passed away, so that they do not extend new credit products to anyone applying in the deceased person’s name.
Unfortunately, identity fraudsters have been known to take out credit products in the names of deceased people. This information is collected from obituaries and other publicly available sources in certain situations. As a result, while issuing public remarks, the relatives of the deceased may want to avoid including personal information such as the deceased person’s date of birth or residence.
This form of identity theft can inflict significant financial harm to the estate of a deceased person, forcing surviving family members to go through a long and difficult recovery procedure. Families should instantly contact their banks, lenders, and any other financial organizations where the deceased individual had accounts, formally demanding that they issue a deceased alert, to protect themselves against the possibility of fraud. Directly writing to the three major credit reporting agencies—Equifax (EFX), Experian (EXP), and TransUnion (TRU)—can also be beneficial as a precaution.
Does my parents debt passed to me?
Losing a loved one is a particularly tough experience. While money is likely the last thing on your mind as you grieve, it’s critical to understand how the assets and obligations left behind will affect you and others.
The majority of the time, a person’s debt is not passed on to their spouse or family members. Instead, the estate of the deceased person is usually responsible for paying off any remaining obligations. In other words, the assets they had at the time of their death will be used to pay off the debts they had at the time of their death.
It is conceivable to inherit debt if their estate is unable to satisfy it or if you jointly held the loan. State laws on inheriting debt differ, but assets can be protected from creditors if certain precautions are followed, such as establishing a living trust.
Who is legally classed as next of kin?
In most cases, the phrase refers to your closest blood related. It usually refers to the husband or wife of a married pair or a civil partnership. You can give the designation of “next of kin” to anyone, from your partner to blood relatives and even friends.
What happens to bank account when someone dies without a will?
The account will be frozen by the bank. Before releasing any funds, the bank will normally require to see a Grant of Probate. This is because they are required by law to verify that they are releasing funds to the correct person. The monies will be released once the bank is satisfied with the Grant of Probate.
When someone dies what happens to their credit card debt?
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.
Are medical bills forgiven upon death?
Medical debt does not go away when a person dies. In most circumstances, the estate of the deceased person is responsible for paying any outstanding debts, including medical costs.
How do you collect a debt from a deceased person?
Send a claim for the debt owing to the estate’s executor. Include copies of any debt proof you have. If the executor asks for more information, be ready to defend your claim. Allow enough time for the estate to be resolved.
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.
