Dealing with the death of a loved one is hard enough, but the deceased person's debts can compound the stress encountered while grieving. Often, debt collectors will reach out directly to family members to settle debts when they're least emotionally equipped to handle such matters. In most cases, however, the responsibility for debts go no farther than the decedent and the assets she left behind.
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In general, the estate of a deceased person's will cover debts to the extent possible, but the debt does not get passed on to the relatives of the deceased. Creditors will have to write off most debts, such as credit card debts, if the estate is not sufficient to cover the debt, as long as the relative had not previously cosigned for that debt. Creditors at times will contact relatives to ask if they would like to settle a deceased person's debts, but they usually are under no legal obligation to do so, although creditors can send collection agencies after any inherited property.
Some types of debt are attached to their associated assets. For example, when an heir takes possession of a car on which payments are still owed or a house under mortgage, they also inherit the debt for that asset. In those cases, the creditor could determine whether the estate is sufficient to pay off the outstanding debt, after which the heir could inherit the house or car free and clear. The relative also could opt to continue payments as scheduled. The creditor also could try to sell the asset, and the estate could pay off the difference between the sale price and the owed debt. Heirs may opt to allow foreclosure or seizure of the vehicle if they do not want to inherit the associated debt.
Several U.S. states--Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin--are community property states, so in some cases, a person could inherit debts of a deceased spouse even if his or her name is not directly on those accounts. On the other hand, some of the deceased person's assets do not go through probate and in most cases are exempt from covering a debt. These can include pension accounts such as 401(k)s, IRAs, brokerage accounts, insurance and a house. The rules on these vary from state to state.
When a relative dies, have the executor notify all creditors of the death. If contacted by any creditors or collection agencies, give them the contact information for the executor. Never make any promises to the creditors of paying off any debts. Consult a knowledgeable attorney if you have any questions about the debt, particularly when your spouse has died and you live in a community property state. Report any abusive or harassing creditors to the U.S. Federal Trade Commission.
Avoid giving any personal information, such as a Social Security number or bank account information, to anyone calling regarding a deceased relative's debt, unless you are familiar with the agency. The FTC warns that some criminals often read obituaries and attempt to contact relatives posing as debt collectors to procure personal information. They then use this information to commit identity theft.
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