Who Pays the Debt of a Deceased Person

When someone you love passes away, it is a difficult and traumatic life event; it can be even more difficult when the deceased carried a high burden of debt. The ultimate question in this case is, “Who is responsible?” While the memory of your loved one may not disappear quickly, the debt collectors do not waste any time beginning with harassing calls to the bereaved party. If the debt has mounted and is out of control, it is vital to know what your rights and responsibilities actually are when it comes to paying it off.

When a will is present

In a will, the deceased names the executor i.e. responsible party for doling out assets and debt repayment. It is the executor’s responsibility to ensure that all assets  liquidated and debts paid. In this scenario, the grieving party has no direct responsibility to the debt collectors unless assets were held in a combined capacity or unless the spouse is named the executor.

For example, if a husband dies, all named assets in they will default to the widow.  The widow is responsible to make sure the executor receives the assets to pay off debt held only in the husband’s name. This does not apply to debt held in joint tenancy, as the widow is now solely responsible for that debt. If the debt was accrued under both parties, the debt and subsequent compensation are now the sole responsibility of the widow.

If there is a will, and no living spouse or other relatives, the estate of the deceased is liquidated by the executor and debts paid off, with any remainder given to the named parties in the will. If the debts exceed the value of the estate, no individual is responsible for repayment and the debts must be written off.

When a will is not present

When the deceased does not have a will, all of the debt, repayment responsibilities and assets automatically revert to a living spouse. If there is no spouse, the benefits and debt default to the nearest living dependent. If the dependent is not 18 years old, they cannot assume responsibility for the debt. In these cases, the assets of the deceased are liquidated by the executor of the estate, after the assets are doled out according to the assignments in the will.

Settling debt via asset

When there are no living relatives to the deceased and no executor, the state appoints an executor to pay the debt. The executor of the estate uses the collateral in the form of any liquid assets to settle debts. Once liquidated assets are consumed, the exectutor is able to liquidate assets like retirement funds, pension accounts, and homes in order to pay off creditors. If the debt is so substantial that it cannot be settled, even when all assets are liquidated, the creditor has no choice but to write the debt off.

Debt Precedence

It is also necessary to realize that certain debts take precedence over others. For example, unpaid student loans or child support will always be paid by the using the deceased’s assets before any credit card company sees a dime. If the deceased’s estate does not have the adequate funding to pay off the debt and has no spouse, then the debt is written off. If there is a balance left over once assets are liquidated and debts paid, the state assumes responsibility to find the nearest living relative for the remainder. The funds remain in a state treasury account until the family member is located. If the family member cannot be found, the money defaults to the state treasury department and is held in probate. Unless the family member cannot be found, in which case the assets transfer to the state treasury. The statute of limitations for this varies from one state to another.