Who is responsible for a deceased family member’s debt?
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UPDATED: Feb 7, 2012
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When a relative who had an accumulation of debt passes away, their debts are usually paid by money taken out of their estate. This usually occurs before any heirs receive their cut from the deceased’s will, so the family members usually don’t have to worry about it, but and responsibility for handling this usually falls on representative handling the deceased’s estate. Consequently, this is usually not something the surviving family members need to worry about.
Some problems can arise, however, if the deceased does not have enough money or equity in their estate to handle all of their debts. For example, if a deceased does not have any liquid money, but instead has a house that is still tied to a mortgage loan, the family member who inherits the house will likely be responsible for the remaining balance on the home’s financing. Often this leads to the inevitable result of selling the home in order to pay off the home loan.
Likewise, if that same situation arises with an automobile still linked to a car loan, surviving heirs will often resort to selling the auto mobile in order to satisfy the debt.
Things can become slightly more convoluted when the deceased has hidden or small personal loans that the rest of family isn’t aware of. In order to handle these, Martin Shenkman, an estate and tax planning attorney, told bankrate.com that family members should monitor the deceased’s mail, P.O. boxes, and bank statements in order to identify and satisfy any and all outstanding personal loans.
Since creditors have a 60 to 90 day period to respond to any deaths, after three months or so the family can rest assured that any additional hidden personal loan debt will not come back to haunt them.
Unfortunately, if the deceased is insolvent and bills are paid out of the heirs’ inheritance, family fights often occur.
“When someone dies, it’s a very emotionally charged event for the family and loved ones,” Shenkman told Bankrate. “When you combine that with the potential of not getting an inheritance but instead having to deal with debt, you’re talking about a hypercharged situation.”
As a result, it’s important that wills are formed and written in a very descriptive and instructive manner.