Losing a loved one is a painful and upsetting experience. If you find that your loved one has passed away with unpaid debts, that only adds to your stress and heartache. In the following article, we will discuss what happens when someone passes away with unpaid debts, how those debts are paid, and who is responsible for them.
What Happens to Debt at Death?
When a person passes away with unpaid debts, their debt does not disappear. This includes home mortgage debt, car debt, credit card debt, medical debt, and unpaid tax bills. Typically, a decedent’s estate is responsible for paying unpaid debts. The executor or administrator of the estate will utilize the decedent’s assets to pay off their debt. A decedent’s debts must be satisfied before any assets can be distributed to heirs.
How Are Debts Paid?
After the probate (or estate administration) process begins, courts typically require a “notice to creditors” to be placed for several weeks in a newspaper published within the county where the estate is being administered, depending on the specific state’s law. This notifies creditors to file a claim with the probate court to collect their debts from the decedent’s estate. If the creditor fails to file a claim within the prescribed period, the court can decide to exclude the claim.
Once the total debt is determined by the court, the executor or administrator of the estate will decide which assets must be sold or liquidated to satisfy the debt. They can also negotiate with creditors to settle the unpaid debt at a lower amount.
The executor or administrator can also dispute a debt with the probate court. An evidentiary hearing will then be held to determine if the debt claim is valid.
Can Heirs Be Held Responsible for Debt?
If the decedent’s debt cannot be satisfied by liquidating assets, heirs may be held responsible for their loved one’s debts in limited circumstances, including:
- When real estate is jointly owned by the decedent and another person (even if the mortgage is only in the name of the decedent)
- When a business or other asset is jointly owned by the decedent and another person
- When another person co-signs a loan or credit card
- When the decedent lives in a community property state
How Can You Shield Assets from Creditors?
There are tools and strategies for shielding assets from being liquidated to satisfy creditors. An experienced estate planning attorney who is skilled at asset protection can help you consider your options and set up one of these legal vehicles. For example, you could transfer assets to a trust, limiting creditors’ access to those assets, which would not pass through the probate process.
Contact a Brandon Will and Trust Attorney
If you find yourself responsible for the unpaid debts of a loved one, your first call should be to an experienced estate planning attorney who can help you evaluate your legal rights and options. Our Brandon will and trust attorneys are available to assist you with the probate process and to help you administer your loved one’s estate in the fastest and most cost-effective way possible when dealing with debt issues. If you have questions or need advice, please feel free to contact our Brandon law firm at (813) 438-8503 to schedule a consultation.