Many people have lines of credit that they use on a regular basis, and they know those lines of credit have to be paid. What most people don’t think about is what happens to those debts if they pass away.
Debts don’t vanish when a person dies, but they don’t automatically transfer to family members either. The only time that a family member is liable for a decedent’s debts is if the loved one is a co-signer or joint account holder for the debt.
Who pays for the debts?
If there isn’t a co-signer or a joint account holder, the estate is responsible for paying the debts. This goes through the probate process and is taken care of by the estate administrator.
As part of the probate process, the estate administrator will notify creditors that the account holder has passed away. This gives the creditors a chance to file a claim with the estate. Claims that are made must be paid in a specific order, which typically includes funeral costs, administrative expenses and taxes getting paid before anything else.
If there isn’t enough in the estate to cover the debts, the debts won’t get paid. This is often the case for unsecured debts if the estate is insolvent.
What should family members do if they’re approached by creditors?
Family members should simply direct the creditor to the estate administrator. They shouldn’t ever provide personal or financial information to these creditors because they aren’t liable for the debts.
It’s critical that anyone who’s handling the estate administration duties understands how to handle debts and other expenses. It may be beneficial for them to work with someone who’s familiar with these matters.