What Happens To Debts Of A Deceased Person?

By Jay White

June 7, 2015   •   Fact checked by Dumb Little Man

Debt does not go away when someone dies. The person’s estate is responsible for the outstanding balances up to the amount of available funds. Whether or not a person is responsible for the debts of a deceased loved one depends upon a number of factors. These include whose name is on the account and if you live in a community property state. Certain funds may be legally safe from liquidation to pay creditors. The rules governing paying the debts of a deceased individual are based on federal statutes and the state laws of the decedent’s last legal residence. The following is a sample of common rules for settling the debts of a decease individual.

Probate Process

During probate process, the executor of the will ensures that any outstanding debts are settled using funds available from the estate of the deceased person. A solvent estate has sufficient assets to pay off all outstanding debts, but an insolvent estate does not have enough assets. In this case, the deceased individual’s personal representative prioritizes who is paid based on federal and state laws. Depending upon the amount of funds available, some creditors may be paid in full, receive a partial payment or no money at all. A court will decide how to settle the estate if the person died intestate, which means without a will.

Community Property

Regardless of whose name appears on the account, in certain community property states like California, Nevada and Texas, the surviving spouse is responsible for repayment of the debt even if they did not co-sign or use the account. Most states are not community property states. How much responsibility a surviving spouse may have also depends upon whether assets are held as “tenants in common” or as “joint tenants.” In the first scenario, each person is only responsible for his or her share. In the second scenario, the debt passes entirely to you.

Loved Ones Do Not Inherit Debt

In non-community property states, surviving spouses may not be responsible for their loved ones debt. Children and other relatives do not inherit another family member’s financial obligations. They have no legal obligation to pay off a deceased relative’s outstanding debts. The exception to this general rule is if loved ones or heirs co-signed or otherwise guaranteed the debt. Creditors have the legal right to seek the funds from the joint signatory if the other is unable to pay.

Jay White

I started Dumb Little Man many years ago so great authors, writers and bloggers could share their life "hacks" and tips for success with everyone. I hope you find something you like!

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