What Happens with a Parent’s Debts after their Passing?
When a person passes away, their debts do not automatically disappear. The handling of their debt typically depends on various factors, including the type of debt, the deceased person’s financial situation, and local laws. Here are some common scenarios for what may happen to a deceased person’s debts:
Estate Settlement
When someone passes away, their estate is responsible for settling their debts. The estate includes all the assets and liabilities the deceased had at the time of death. The estate’s executor or administrator is responsible for identifying and paying off the debts using the assets from the estate.
Secured Debts
Secured debts, such as mortgages or car loans, are tied to specific assets. In many cases, these debts can be resolved by selling the associated property. If the sale of the property doesn’t cover the full debt, the remaining balance may become a claim against the estate. Heirs may choose to pay off the debt to keep the property or allow it to be sold to satisfy the debt.
Unsecured Debts
Unsecured debts, like credit card debt or personal loans, are not tied to specific assets. These debts are typically paid from the assets of the estate, but if there are insufficient assets to cover them, they may not be fully repaid. In many cases, the creditors must write off the debt, although they may make a claim against the estate for any available assets.
Joint Debts
If a debt was jointly held with someone else, such as a spouse, the co-signer or joint account holder may become solely responsible for the debt. However, this depends on the terms of the specific debt and local laws.
Life Insurance and Retirement Accounts
If the deceased had life insurance policies, the beneficiaries of those policies receive the death benefit, and this is usually not subject to creditors’ claims. Retirement accounts with named beneficiaries also typically pass directly to the beneficiaries and are protected from most creditors.
Probate Process
The probate process, which varies by jurisdiction, is used to settle the deceased person’s estate. During probate, creditors have the opportunity to make claims against the estate. The estate’s assets are used to pay off these claims in a specified order of priority.
It’s important to note that heirs are generally not personally responsible for the deceased person’s debts unless they were co-signers on the accounts. While the estate is responsible for settling the debts, if there are insufficient assets to cover the debts, they may go unpaid.
We can help you navigate the legal complexities of settling an estate and help ensure compliance with applicable laws and regulations. Call Linda Solash-Reed, P.L. at 321-804-2915 or fill out our contact form and we will be in touch to schedule a meeting.