Many people use credit to get the things that they want while they’re alive. They may not think much about what’s going to happen to those accounts when they die. The fact is that debts don’t automatically go away just because the account holder passed away.
If a debt is secured, the creditor can reclaim the property securing the debt. This could mean repossessing a car or foreclosing on a home. In some cases, the loved ones of the decedent might be able to keep this property, but it will usually mean having to refinance it using their own credit.
What happens to unsecured debts?
In most cases, the estate is going to be responsible for paying off the decedent’s debts. The estate administrator has to either pay cash from the estate or they have to liquidate assets to cover the debts. If there’s no cash and no assets to liquidate, the estate is considered insolvent, and the debts likely won’t be paid. It’s important to note that all debts must be paid before the beneficiaries can receive inheritances out of the estate.
Do loved ones ever have to pay a decedent’s debts?
Typically, loved ones are not responsible for paying a decedent’s debts. The exceptions to this are if the person is a joint account holder or a cosigner for the account. In those cases, that individual would be responsible for paying. Any loved one who’s contacted by a creditor to pay a debt and doesn’t feel as though they should be responsible for it should send the creditor to the estate administrator.
The entire probate process must be handled very carefully. An estate administrator should work with someone who’s familiar with these laws so they can ensure that they’re paying off debts in the priority order that’s set by law.