Is Their Debt, Your Debt?

When a celebrity dies, most of us mourn the loss of a star, or athlete, who has given us so much pleasure and excitement during their lifetime.  It is only later, that it is reported that at their death, many of them had debts that were never fully paid back. Are their families now responsible to pay them back? When any parent dies with debt, who is responsible? …a question that is raised many times by my clients.

Many people have the misconception they are personally responsible for paying their loved one’s debts. Any outstanding debt your parents have upon their passing will go against their estate. Their home may be sold to pay debts and to pay off creditors. There is also a misconception, a surviving spouse is responsible for their deceased spouse’s debts. This is only true when the spouses own property and assets jointly.  If assets are owned separately, the remaining spouse is never responsible for those debts.

Creditors can go after the assets within the estate in an effort to satisfy the debt, but they cannot come after you personally. Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for pennies on the dollar.

Also, many aggressive collection agencies continue to pursue collection even after death, often implying that you are ultimately responsible to repay your loved one’s debts. Those assertions are entirely untrue.

Secured debts, on the other hand, must be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If the decedents had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold or transferred. This must be weighed within the context of the overall estate.

Avoid making the mistake of automatically paying off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of loved ones’ overall financial situation, you run the risk of coming up short on cash, within the estate, to cover higher priority bills, such as medical expenses, funeral costs or legal fees required to settle the estate.

Be Educated! Be Proactive!