If parents pass away in debt, their children don’t have to pay the bills, but there might not be much left for them to inherit.
Based on statistical data, nearly 40% of individuals will pass away in debt, which presents a serious worry for surviving spouses and children: Will their debt be inherited?
The deceased’s estate is responsible for settling most, if not all, debts. In most situations, debts are erased if there is not enough money in the estate to pay off those obligations, or if the estate is insolvent.
The money that surviving family members would have inherited will be reduced or possibly eliminated by liquidating the estate’s assets and paying off all outstanding debts, but this is the price paid for not having to worry about debt after death.
Grieving over a relative’s passing shouldn’t be exacerbated by calls and letters from creditors demanding payment. Be cautious before paying a credit card company that requests payment upon the death of a family member because laws protect people from inheriting debt.
Within six months of the estate being opened, creditors requesting payment must submit their written request to the designated executor or an attorney for the estate. No claims are accepted after that time and not all claims will be paid.
Some creditors put pressure on family members to pay off the debt with their own funds rather than bothering to submit a claim with the estate. If you aren’t a co-signer or joint debtor, you aren’t responsible.
Creditors may go after a surviving spouse to settle a debt in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Spouses in Alaska, South Dakota, and Tennessee have the option to designate certain assets as community property or choose to participate in the community property system.
If family members are still being harassed by creditors for payment, send a letter or get in touch with your lawyer demanding that they cease all communication. Creditors are prohibited by the Fair Debt Collection Practices Act from discussing a debtor’s situation with friends, family, or neighbors.
The executor verifies claims made within six months of the estate’s opening, and payments are made according to state and federal priority lists.
The death of a loved one is a difficult time, and the last thing you want to worry about is debt However, it’s important to understand that you may be responsible for some of your loved one’s debts, depending on the circumstances
Here’s a breakdown of what you need to know about inheriting debt:
What Happens to Debt When Someone Dies?
When someone dies, their debt doesn’t magically disappear. Instead, it becomes the responsibility of their estate. The estate is everything the person owned at the time of their death, including their assets and debts.
The executor of the estate is responsible for paying off the debts using the estate’s assets. If there are enough assets to cover the debts, the creditors will be paid in full. However, if there are not enough assets, the creditors may not be paid anything.
What Debts Can Be Inherited?
Not all debts can be inherited. Here are some of the debts that can be inherited:
- Secured debts: These are debts that are backed by collateral, such as a mortgage or car loan. If the estate doesn’t have enough money to pay off the debt, the creditor can take possession of the collateral.
- Co-signed debts: If you co-signed a loan with someone who dies, you are responsible for the debt.
- Joint debts: If you have a joint account with someone who dies, you are responsible for the debt.
- Community property debts: In community property states, debts incurred during the marriage are considered community property and are the responsibility of both spouses.
What Debts Cannot Be Inherited?
Here are some of the debts that cannot be inherited:
- Individual credit card debt: If your loved one had credit card debt in their own name, you are not responsible for it.
- Personal loans: If your loved one had a personal loan in their own name, you are not responsible for it.
- Medical debt: Medical debt is typically discharged upon death.
What Should You Do If You Are Concerned About Inheriting Debt?
If you are concerned about inheriting debt, there are a few things you can do:
- Talk to an attorney. An attorney can help you understand your legal rights and obligations.
- Contact the creditors. You can contact the creditors to find out how much debt your loved one owed and what your options are.
- Consider filing for bankruptcy. If you are unable to pay off the debt, you may be able to file for bankruptcy.
Here are some additional things to keep in mind:
- You are not personally liable for your loved one’s debts unless you co-signed or are jointly responsible for the debt.
- You can disclaim your inheritance, which means you will not be responsible for any of your loved one’s debts.
- If you are concerned about inheriting debt, it is important to take action as soon as possible.
Here are some additional resources that you may find helpful:
- The National Consumer Law Center: https://www.nclc.org/
- The Consumer Financial Protection Bureau: https://www.consumerfinance.gov/
- The American Bar Association: https://www.americanbar.org/
Advice for Dealing with Debt After the Death of a Family Member
The first step would be to ascertain who the executor or administrator of the estate is, since the estate bears the majority of the responsibility for fulfilling debts. That is the person who pays debts with money from the estate.
Next, you should know (or research), whether you shared responsibility for any debts with the deceased. These debts may be unsecured (such as credit card debt, medical expenses, or student loans) or secured (such as mortgages on homes or vehicles).
If the executor of the estate is unsure of your obligations, get in touch with a lawyer and request a consultation to find out whether any of the debt is legally enforceable against you and what your options are for paying it off.
Either you or your lawyer should request specific information about the debt and the reasons you should take responsibility if debt collectors get in touch with you directly.
Make thorough notes of any conversations you have because there may be multiple collection agencies involved and their claims against you or the estate may not be genuine. Get the name of the person; the date you spoke, the subjects discussed, and any follow-up actions needed.
Credit Card Debt After Death
Unless you used credit card debt as part of a joint debt agreement or co-signed the agreement, credit card debt is unsecured debt that belongs to the estate. It is near the bottom of the list of debts to be paid.
» Learn More: Credit Card Debt Help
Are Heirs Responsible For Credit Card Debt?
FAQ
What debts are forgiven at death?
Are my heirs responsible for my debts?
When a parent dies does the child inherit debt?
Can debt collectors go after family of deceased?
What happens if you inherit a home with a mortgage?
Mortgage debt: Inheriting a home with a mortgage is a very complex issue. So talk to an estate lawyer familiar with all state and federal laws governing the issue. Generally, if you inherit your parent’s home and it still has a mortgage on it, the lender may not demand that you pay off the mortgage immediately.
Do you inherit debt from your parents?
This is an important question to ask if your parents are carrying high amounts of debt and you’re worried about having to pay those bills when they pass away. Again, the short answer is usually no. You generally don’t inherit debts belonging to someone else the way you might inherit property or other assets from them.
Do I have to pay debt if I inherit a debt?
Again, the short answer is usually no. You generally don’t inherit debts belonging to someone else the way you might inherit property or other assets from them. So even if a debt collector attempts to request payment from you, there’d be no legal obligation to pay.
Can debt be inherited?
However, if their estate can’t cover it or if you jointly held the debt, it’s possible to inherit debt. Laws on inheriting debt vary by state, and assets may be protected from creditors if certain measures have been taken, such as the creation of a living trust. What Kinds of Debt Can Be Inherited?