Most individuals owe money to someone. It's hard to live in the modern age without incurring at least some debt. Debts don't usually die with the individual who incurs them, but sometimes they do. The outcome often depends on whether the deceased's estate goes through the probate process and if the decedent leaves enough money with which to pay outstanding bills.
Loved Ones Don't Inherit Debt
With only a few exceptions, heirs and loved ones are not responsible for a decedent's debts. If the person incurred the debt in his name alone, creditors either receive payment through the probate process or they don't receive payment at all. Exceptions are co-signed or guaranteed debts. When two individuals co-sign for a debt, the creditor has a legal right to go after one signer if the other can't pay. Guaranteed debts work much the same way. The guarantor promises the lender payment of the debt if the person who incurs it cannot. This sometimes happens with medical bills.
The Probate Process Pays Debts
When someone dies, a legal process called probate is necessary to transfer ownership of the person's assets to heirs or beneficiaries, if there is a will. The probate process also pays the decedent's debts. Debts come off the top of the estate before the remaining assets transfer to heirs or beneficiaries. One of the first steps of the probate process is notification to the deceased's creditors that they must make an official claim for payment. Failure to respond means they don't get paid. If the estate doesn't go through probate, and if no one else co-signed or guaranteed a debt, creditors may not receive payment.
Sometimes Debts Can't Be Paid
Sometimes a decedent leaves more debts than assets. When this occurs, the estate is insolvent. The executor of the estate (the person who manages the probate process) is obligated to sell off or liquidate assets to raise cash to pay the deceased's creditors as much as possible. Certain debts may receive payment first, depending on state law. For example, unsecured creditors may be last on the list. In most states, some assets, such as retirement funds, are legally safe from liquidation to pay creditors. If there's no money left in the estate, creditors don't get paid. They have no further options for collection.
Community Property Estates
In community property states, husbands and wives own all property and owe all debts equally. In these states, the surviving spouse is usually responsible for paying a partner's debts after death, even if the spouse didn't co-sign for or guarantee them. Most states, however, are not community property states.
A Consumer Law Attorney Can Help
The law surrounding liability for debts after death is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer law attorney.