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Estate should pay decedent’s debt – not survivors

By Nathan Vinson, attorney
English, Lucas, Priest and Owsley, LLP

estate debtWhen a spouse, parent or child passes away, it’s incredibly difficult to handle. Beyond your own grief, planning the funeral and handling a thousand different tasks, you may receive calls or letters from creditors who try to convince you that you should pay the debt of the person who died.

In one recent case, a widow received a collection letter from an agency that specializes in collecting debt for creditors of deceased people. The estate had been closed for about a year. She didn’t owe that debt, but the collection agency tried to convince her that she did.

Collecting decedent debts

By law, you don’t owe a debt for someone who died (unless, of course, you owed the debt jointly with the decedent or as a guarantor). Once the person passes away and the proper steps have been taken to handle the probate estate, the opportunity for a creditor to collect unsecured debt is gone.

Credit agencies, especially the less reputable ones, may use all manner of intimidation and even threats to get people to pay debts. These calls can be troubling and confusing for people, especially those who are older or who don’t know the law. It’s important to understand how debt is collected to protect yourself and the people you love.

The probate process

The process works like this: once someone dies and a probate case is filed, the person’s estate is considered open and publicly advertised as such, typically in a local newspaper classified ads’ section. The creditors are given a set period of time to file notice with the courts that they are owed money. The estate administrator (or executor) will then pay off debts from the funds in the person’s estate. This period is known to those familiar with probate as the “creditor period” and it allows creditors to come forward and line up to be paid. Once the estate is out of money, the creditors who haven’t been paid are out of luck.

Don’t confuse this with creditors that have a “security interest” in certain property, like a car or a house subject to a lien or a mortgage.  These creditors have a superior claim to the property, and that superiority just keeps rolling along with the property until the debt is paid.

As an example, if you have a mortgage, the house attached to it could be sold and the mortgage paid. If there is any cash left over from the estate it could become an inheritance or that cash could be used to pay off other debts, such as medical or credit card debt. However, as mentioned above, if you have co-signed on a loan to or guaranteed a debt for a person who is now deceased, you’re obligated to pay that loan off. Of course, you have the option to sell the vehicle and pay off the loan from the proceeds if you’d like. On the other hand, you could end upwith extra debt beyond that if the person who died owed more than the car is worth.

The Takeaway

There are a variety of different situations that call for a variety of different ways that a decedent’s debt is handled.  Most commonly, the debt is either handled in the decedent’s probate or it remains attached to certain property in the case of a mortgage or car loan, for example.  Just remember that it is not the general rule that you owe a decedent’s debts just because of your relationship to the decedent. Our firm handles tax matters, estates and probate. Please let me know if I can assist you. You can reach me, attorney Nathan Vinson, at nvinson@elpolaw.com or (270) 781-6500.