Dealing with debt after a death

The debt individuals leave behind when they pass away can be a difficult issue for friends and family. There is a specific process for sorting out the debts a person owes, but many creditors try to bypass the process.

The status of debt

Debt is an individual financial responsibility. When a person dies, the responsibility for that debt stays with that individual’s estate. If a debt is shared, with co-signers, co-applicants or a married couple in one of the nine community property states, then the co-debtor is responsible for that debt. No matter what creditors tell friends or family, any debt that is only in the name of the person who has passed away is the responsibility of the estate alone.

Basics of probate

Probate is the legal process of closing out the estate of an individual, no matter whether that person has a will or not. Any individually held debts fall under probate, as do any individually held assets. Probate court is responsible for taking inventory of an individual’s debts and assets and distributing them. Probate includes credit card bills and debt, so referring creditors to probate court is a legitimate option if you are contacted about a deceased relative’s debt.

The special case of community property

There are nine states with community property law. In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, debt is considered to be a part of the marriage, even if both members of the couple did not sign onto the debt. There is case law that goes both directions on the question of community property debt after death, so it is important to consult with an estate-planning or probate lawyer.

Watch out for scam artists

After a death, there are scam artists who try to use the misfortune as a way to take advantage of people. Never give out your name or personal information, even if the person on the other end of the phone claims to be a creditor or to have a right to discuss financial issues with you. The executor or administrator of the estate is responsible for gathering financial information and working with the probate court.

Sources

Clearpoint
AARP
CreditCards.com
CNN