What happens to an individual’s debt when they die?

On Behalf of | Jan 17, 2024 | Estate And Probate Law |

Dealing with debts after a person passes away can be a complex and sensitive issue. It’s a common concern for many, especially for loved ones left behind. Understanding what happens to these debts is crucial in navigating the aftermath of a loved one’s passing.

Handling debts after death involves determining which debts are owed and how they are to be paid. It’s important to note that the responsibility for these debts often doesn’t transfer to family members or loved ones, it remains with the estate.

Settling debts: The role of the estate

When a person dies, their debts become the responsibility of their estate. An estate includes everything the deceased owned at the time of death, including their property and personal belongings. The executor of the will, or an administrator if there’s no will, handles the estate and pays off debts using the estate’s assets. This process is part of settling the deceased’s affairs and is known as probate.

Prioritizing debts

Not all debts are treated equally. Certain debts must be paid before others. Typically, funeral expenses, taxes and legal fees are prioritized. Following these, secured debts, such as mortgages or car loans, are addressed. Unsecured debts, like credit card debts and personal loans, are considered. Some may remain unpaid if the estate doesn’t have enough assets to cover all debts.

Loved ones typically aren’t responsible for debts

Family members or loved ones aren’t legally responsible for the deceased’s debts unless they co-signed the debt or are joint account holders. Debts are generally settled using the deceased’s estate, not the personal assets of heirs or relatives. If the estate is insufficient to cover the debts, creditors may write off the remaining amounts.

Once a loved one passes away, heirs and beneficiaries must understand how to handle creditors. Typically, they should direct the creditors to the estate administrator or executor. The only time that’s not the case is when there’s a valid and lawful reason the creditor should collect from the heir or beneficiary.

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