Dealing with the Debt of a Deceased Loved One
The death of a loved one is never easy. Along with the emotions involved, there are a lot of details and logistics to manage when a loved one passes away. Unfortunately, dealing with debt may be part of the process. What happens to the debt of the deceased? Does it need to be paid off by heirs? Does it vanish? Who is responsible? There’s no simple answer, and different debts are treated differently.
Debt is typically something that’s looked at in context of the entire estate. Most people have certain assets and liabilities, and upon death, you total up the assets, subtract the liabilities (debts), and whatever is left is passed on to the heirs. So, generally speaking, any outstanding debt held by the deceased would be subtracted from their remaining assets, and that would be the end of it. But what happens if someone dies without any assets, or his or her debts outweigh his or her assets? That’s when things get trickier.
The good news is that in most cases, family members are not responsible for the individual debts of the deceased. For example, if your husband dies and he had a credit card with an outstanding balance of $5,000, you would not be responsible for the debt as long as this was only his card and not a joint card. The estate would settle the debt with any available assets, and if there wasn’t enough money to pay the debt, the credit card company would write it off and that would be the end of it.
However, if it is a joint card, that is your debt, regardless of who made the charges, and would need to be repaid to avoid a negative impact on your personal credit. Keep in mind this is only the case if it’s an actual joint account that you co-signed on — not one where you may simply be an authorized user.
While generally not being responsible for debts is good news for surviving family members, that doesn’t mean creditors will simply disappear. There are cases where certain debts are turned over to debt collectors who try to contact heirs and demand repayment. Unfortunately, during an already stressful time, the surviving family member may follow these demands without thinking twice about it. Fortunately, relatives are protected from creditors by the federal Fair Debt Collection Practices Act (FDCPA). If you or another relative are receiving calls or letters regarding a debt after the death of a loved one, you should seek an attorney.
There is one scenario where finding out who is responsible for debts after death is a bit more complicated. Things such as the probate process upon death are governed by state law, and some states employ community property law. This means that assets, and possibly even debts, that are accumulated during a marriage are considered joint property. Depending on where you live, there could be situations that arise where finding out how the debt will get paid is not cut and dry, which is why it’s important to seek professional counsel while working through the estate process.
As with most situations involving the financial implications of a deceased, it’s wise to check with an estate or trust attorney before dividing assets.
About the Author
A financial planner turned retirement planning specialist, Jeremy Vohwinkle has been writing about finance since 2006. He holds various FINRA licenses and has obtained the Chartered Retirement Planning Counselor designation from the College for Financial Planning.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2014 ConsumerInfo.com, Inc. All rights reserved.