Many people go through life with debts of various types. This might be things like medical bills and credit card debt, but they may never think about what will happen to those debts when they pass away.
In most cases, the debts are handled by the estate after the person passes away. The debts don’t simply vanish. The creditors can file with the estate to have the estate pay what’s owed.
How does an estate pay debts?
The estate will pay the debts in an order determined by state law. This is done through cash that’s in the estate or by liquidating assets. If there isn’t any cash or any assets available to liquidate, the estate is insolvent and the debts won’t be paid. Once the estate’s debts are paid, the remainder of the estate can be distributed according to the estate plan.
Are the loved ones ever responsible for the debts?
In most cases, the loved ones of the decedent aren’t responsible for the debts. There are exceptions to this. For example, if the loved one is a co-signer or a joint account holder, that individual will be responsible for paying the debts.
What should loved ones do if they’re contacted by a creditor?
Creditors sometimes try to collect money from the loved ones of someone who passes away. Anyone contacted by one should direct them to the estate administrator. They shouldn’t ever give out their personal or financial information.
Determining how to handle debts as part of an estate can sometimes be challenging. Working with someone familiar with these matters may be beneficial for anyone in this position.