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Deceased Debt

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Myths about Deceased Debt

There are several misconceptions about debts of recently deceased individuals including: whether the debts need to be paid, how they’re paid and who is responsible. Read on to clarify any misconceptions and to understand your responsibilities.

MYTH:  When someone dies, their debts are erased.

FACT:  This is a very common misconception. The thought is that if the person is no longer alive, they cannot be responsible for their debt. This is not entirely true. If possible, all debts will be paid via the Deceased’s estate during formal or informal probate proceedings.

Debts in an Estate: The creditors of the Deceased have the right to file a claim on the estate in order to recover funds owed to them. This usually happens during the probate process. It varies by state, but if a creditor makes a claim within the state’s legal time constraints, the claim must be paid if funds are available when probate proceedings come to an end. Please note: The personal representative does have the right to dispute the claim of the creditor.

No Estate: When an estate does not exist, but assets do, the creditors can work with the surviving family to understand what assets are available to repay the Deceased’s debt obligations. The creditor or their representatives should always approach the family in a respectful and empathic way to develop a plan for repayment.

MYTH:  When someone dies, the Deceased's debts are transferred.

FACT:  Many people also think that if someone dies, their debts are then transferred to the next of kin or even the personal representative. Unless an account was held jointly, such as a mortgage, the debt does not transfer to a survivor. The creditor can file a claim for debts owed by the Deceased during probate proceedings, but the debts do not get transferred if the estate is unable to pay the claim or if a creditor fails to make a claim.

MYTH:  Creditors can always try to get money.

FACT: People often think that creditors are allowed to request payment from the estate at any time. This is also not true. If the personal representative follows the probate proceedings correctly in providing notice of death, the creditors have a specific window of time in which to file a claim on the estate. They may try to collect on a date outside the time limit, but they are within their legal rights to do so. The statute of limitations in which to file a claim varies by state, so consult your probate attorney or state probate code for more information.

MYTH:  Family comes first when distributing the estate.

FACT:  In probate proceedings, heirs and family members are not the first recipients of assets from the estate. Creditors have priority when the assets of the estate are distributed. This means that when the personal representative is authorized to distribute the estate’s assets, creditors who made a valid claim are paid before any heirs or family members receive their portions of the estate. This includes personal possessions such as heirlooms or mementos the deceased bequeathed in their will. Legally, the creditors and other claimants must be paid first, before the heirs or family receives anything from the estate.

MYTH:  If debts outweigh assets, the personal representative won’t be paid.

FACT:  If the estate is not large enough to pay all of the claims, there is another order of priority in which assets are distributed.

  1. The costs and expenses of the administration of the estate, the personal representative, filing fees, attorney’s fees, etc.
  2. Funeral expenses, which generally must be considered “reasonable;” if expenses seem unrealistic, the court might investigate
  3. Federal taxes and debts
  4. Medical expenses––as long as they are “reasonable and necessary”
  5. State taxes and debts
  6. All other claimants including creditors
  7. Heirs

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