How to deal with debt after death

When a family member passes and leaves behind debt, creditors may start calling for payment. This can make the time of grieving even more stressful. Nonetheless, it’s better to face the issue of outstanding debt after death early. Here’s why.

Claims against your estate
It’s a common belief all debts are forgiven when you die. That may not be the case. When you die with outstanding debts, creditors can file a claim against your estate for payment. Claims approved by the probate court are paid out of estate assets.

So you may have to liquidate assets held by the estate (e.g. checking, savings, money market accounts, share term certificates and brokerage accounts) to pay off debts. This happens before the property gets divided among the deceased’s next of kin.

Even if the probate court rejects a creditor’s claim, the creditor can still sue the estate for money. When there is not enough money in the estate to cover all debts, the court decide who gets paid and in what order. You may have to sell estate assets (e.g. furniture or cars) to meet any remaining debts.

Good news
There is some good news. Family members can’t be held personally responsible for debts of another individual. That’s as long as the debt is in the deceased person’s name alone. A surviving spouse/partner is not responsible for a debt created by the spouse/partner.

This is the case as long as the surviving spouse/partner was not a co-signer or joint owner. If accounts are held jointly when one owner dies, the co-signer is responsible for making payments on the account. This may not be the case if the deceased purchased credit life insurance at the time the account was opened.

Exercise caution
Beware of scam artists who contact grieving families. They may contact you demanding payment on debt, especially when you have no record of that debt. Get proof the debt is valid before sending payment.

If you determine you are not responsible for the debt and the bill collector continues to harass you, report them to the North Carolina Attorney General’s office or call 919.716.6500.

Article provided by Local Government Federal Credit Union.

Contact an estate attorney for additional guidance.