Who is Responsible for Paying Debt of the Deceased?

Generally, the deceased person’s estate is responsible for paying any unpaid debts. If there is no money or property left, then the debt generally will not be paid.  While there are exceptions to this rule, discussed below, no law automatically saddles a family member with the debts of a deceased relative.

The Estate is Generally Liable for the Debts of the Deceased

When a person dies, a probate proceeding must be initiated to transfer any assets owned by the decedent to the lawful beneficiaries.   A personal representative is appointed, who obtains court approval to distribute the decedent’s assets according to the terms of a will or under state “intestacy” laws if a will did not exist.

The personal representative pays off debts before distributing any remaining property to the heirs/beneficiaries.  If estate funds are insufficient to cover debts, the estate property may be liquidated to make payments. If there is no money or property left, then the debt generally will not be paid.  The creditor cannot seek to recover from a family member simply because of his or her familial status.  The existence of the debt does have the effect of reducing the value of what is ultimately distributed from the estate, because estate assets will first be used to cover the debt payoff.

Exceptions

There are a few significant exceptions to the above rule:

Joint Account Holders

The joint holders of the account share responsibility for account debts.  If one holder dies, the other holders are responsible for any associated debt.  This includes jointly held credit cards.

Cosigners

Cosigners are sometimes required when someone borrows money, rents an apartment, or assumes some other financial obligation.  Their purpose is to provide added financial assurance that the primary signer’s responsibilities will be satisfied. If the primary signer dies owing money the cosigner remains liable for the unpaid debt.

Marital Debt in a Community Property States

In a community property state such as California each spouse generally shares equally in all property acquired during the marriage, and any debt acquired during the marriage remains the responsibility of a surviving spouse.

Treatment of Student Loan Debt

Unlike most debts, federal student loans are forgiven upon death.  The loan is discharged once a family member or the personal representative of the deceased person’s estate submits proof of death to the loan servicer. Private student loans do not automatically become forgiven at the time of death.  Determining their status requires a close review of the relevant loan documentation.

Please contact Lynx Legal with any questions regarding the above, or if you are ready to start your probate case.  We can be reached at 888-441-2355 or info@lynxlegal.com.  Our experienced professionals are standing by to assist in any way we can.