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What happens to debts when a person dies?

On Behalf of | May 17, 2024 | Estate Planning |

Losing a loved one is an emotionally traumatic event that can be difficult to deal with. The last thing anyone in that position needs is a creditor coming after them for the debts their loved one owed, especially when they aren’t liable for the debts. 

The general rule is that a deceased person’s debts are paid from their estate, not by the surviving family members. The estate consists of all the assets and properties the deceased owned at the time of their death. This includes bank accounts, real estate, investments, personal property and any other assets.

Payment of debts by the estate

The executor is required to notify all known creditors of the deceased’s passing. This process typically involves publishing a notice in a local newspaper and sending direct notifications to creditors. Creditors then have a specific period to submit their claims against the estate.

Once the creditors submit their claims, the executor reviews and validates them. Valid debts are then paid from the estate’s assets. Priority is given to certain debts, such as funeral expenses, taxes, and secured debts like mortgages. If the estate’s assets are insufficient to cover all debts, the estate is considered insolvent, and creditors may only receive a portion of what is owed.

Limited debts loved ones may be liable for

Typically, the only debts loved ones are liable for are debts they hold jointly with the decedent or those they co-signed for. There may be other very limited instances in which the family members may need to pay certain debts. Working with someone who understands this aspect of settling an estate and the aftermath of death may help them to learn which debts, if any, they should pay. 

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