Deceased Relative Debts: Who Is Responsible?
A loved one’s death is a significant loss that, if you are responsible in some way for their wills and estates, can also leave you with the job of sorting out their final accounts. Many have discovered debts in their loved one’s name, which need to be repaid. Yet who is responsible for a deceased person’s debt? You might be surprised to learn that there is more than one answer.
What Is an Estate, and Why Is It Important?
An estate comprises everything of value that a person owns at the time they pass away. Generally speaking, any bills left behind after a loved one’s death must be paid from their estate. This can be done by selling their assets to raise money for the debts or be as simple as writing creditors a check from their bank account. What’s left after these payments can then be distributed via the probate process.
If there isn’t enough in a person’s estate to cover their debts, it may simply be that creditors don’t get paid. However, this only applies to certain kinds of debt. Other kinds can end up the responsibility of family members. Let’s take a closer look at these different debt types and what debts are forgiven at death.
Money Owed on Credit Cards
If your loved one has a balance pending on one or more credit cards and had a joint account with someone, that person will have to pay the debt. However, should there be no assets left in a loved one’s estate to pay these bills, creditors will not receive any money. This is because credit card debt is unsecured, meaning that the lender has no rights to claim assets for the purpose of debt repayment.
However, there are many ways around this. For example, a credit card company can send your loved one’s account to a collection agency, which may hound you with phone calls to try to get you to pay them. As well, they can order a lien to be placed on your loved one’s assets until you pay them, which can make it impossible for you to pay any other debts.
A credit card company may also try to sue you for the money owed, which can lead to garnished wages.
Money Owed on a Mortgage
If your loved one co-owned their home with another person, or if the house will be inherited by a specific individual, the co-owner or devisee (a person to whom real estate is left by the terms of a will) will be responsible for the remainder of the mortgage payments. In the event that your loved one was the only one who owned the home, their estate is responsible for paying this secured debt.
Money Owed on Home Equity Loans
Another secured debt, an outstanding amount left on a home equity loan must be repaid. If the lender wants the full amount owing right away, the house may have to be sold if there are insufficient funds in the estate. However, anyone who is inheriting the home can ask the lender about the possibility of taking responsibility for these payments.
Money Owed on a Vehicle
If you are responsible for your loved one’s estate, you will have to pay any outstanding car loans from that estate if there are sufficient funds to do so. Like mortgages, car loans are secured debts. That being said, if the loan cannot be paid for, the asset—which is the vehicle—becomes the collateral and can thus be seized following the placement of a lien on it by the lender.
Should a friend or family member inherit the vehicle, it will be their responsibility to continue paying the loan. Otherwise, they run the same risk of repossession.
Other Loans that Are Owed
If your loved one had a student loan that was granted privately from a family member, that debt should be repaid by their estate. Once again, if there was joint ownership of the loan via a co-signer, then the co-signer is responsible. As well, because student loans are unsecured, a lender may have no choice but to go unpaid. As far as what debts are forgiven at death, other lenders may dissolve loans immediately following notification that the person has passed away.
Common Issues That Are Completely Avoidable
There are many things that can go awry when trying to settle a loved one’s outstanding debts, even if they obtained estate planning services. However, none of these is impossible to rectify.
Pay Old Debts First
Before accepting any money, beneficiaries must pay any old or outstanding debts left by their loved one. In some cases, a beneficiary can be faced with some unwelcome surprises in the form of hidden debts.
In New York State, it is assumed that creditors will do their due diligence to collect money owed, so it is not mandatory to post a notice to creditors in your local newspaper. The statute of limitations on debt after death states that creditors have six years from the date an executor was appointed to make their claim.1 Creditors who don’t do so have their claims rendered invalid.
Never Speak to Creditors
Another common issue has to do with speaking to creditors or collection agencies. Among the tactics they will use to try to recover their money, members of these organizations will resort to feigned empathy and a friendly and conversational tone to try to coerce repayment.
However, you are not obligated to speak to any creditor regarding your loved one’s debts. The best thing to do is to never make any commitment for payment and to end the conversation as quickly as possible.
Taking Personal Responsibility for a Loved One’s Debt
“Are beneficiaries responsible for a deceased person’s debt?” is a very common question. Unfortunately, some have ended up paying for their loved one’s debt from their own pocket after having a conversation with a creditor.
Although creditors are legally permitted to contact the relatives of a loved one to get the contact information for the person responsible for paying their debts, they are not legally permitted to try to coerce you into paying the debt yourself. None of your loved one’s beneficiaries is responsible for the personal payment of their outstanding debt.
The above is true even if your loved one’s estate is insolvent or contains more debt than assets. If this is the case, you may not receive an inheritance, but you won’t be responsible for debt repayment, either.
Any money that is in the estate will be used to pay for funeral expenses, secured loans, preferential debts (social insurance and tax contributions) and credit cards or personal loans, in that order.
Deceased Relative Debts Can Be a Complicated Process
Even if you do your homework and your loved one left detailed instructions, you can still encounter unexpected problems with settling their debts. The worst thing about going through this process is that you are already feeling emotionally vulnerable and overwhelmed by what needs to be done, and creditors are perfectly willing to take full advantage of this.
You also need to ensure that your loved one’s wishes are followed exactly as they requested, as this can also lead to liability on your part. Having an estate lawyer on your side, you can communicate to creditors that, despite your grief, you will not be taken advantage of. You can also ensure that your attempts to execute their wishes are well within legal boundaries.
However, you need to ensure that the person chosen to represent you is well-versed in New York State probate law. When it comes to your loved one, there is simply no replacement for an attorney who has the right amount of knowledge and experience in probate law.
The lawyers at Joseph A. Ledwidge, PC have 32 collective years of experience in probate and estate administration law. No matter the legal issue surrounding your loved one’s estate, we are well-prepared to represent your interests. At our firm, your result matters. Discover the benefits of working with attorneys who understand your cost and time concerns as you deal with your loss. Contact us today to arrange your consultation.
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