One thing you should know about debt is that it doesn’t go away after the person holding it dies. According to the Consumer Financial Protection Bureau (CFPB), when someone dies, their debts and assets are usually transferred to their estate. Real estate is responsible for pay an outstanding debt.
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If there is no money or property left, in most cases the debt will not be repaid. According to the CFPB, as a general rule, no one else, including family members, is required to pay the deceased person’s debts. However, this is not always the case.
In some cases, surviving family members may be responsible for paying certain debts of the deceased. This depends a lot on the type of debt and where you live. For example, shared debt can fall on survivors’ shoulders in the following scenarios:
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You were the joint account owner.
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You borrowed money as a joint guarantor.
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You are a living spouse and live in a communal property state where your spouse shares responsibility for certain marital debts.
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The state you live in has “essentials laws” that require a parent or spouse to pay for necessary expenses, such as medical bills.
According to a 2022 blog on Experian’s website, in community property states, spouses are “considered co-owners of nearly all assets and liabilities accrued in marriage.” Most states have a different “common law” model that allows spouses to own property separately. The type of law your state follows determines how property is divided upon divorce or death.
Experian only lists nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Her three states of California, Nevada, and Washington also have community property laws regarding domestic partnerships that do not involve marriage.
Some states require the surviving spouse to pay the medical debt, according to Trust and Will’s website. Additionally, if you were the surviving spouse and filed jointly in the year your spouse died, you may be responsible for paying any taxes owed by the decedent. As Trust & Will points out, a surviving spouse can take over tax liability if you don’t want an estate administrator or other agent to pay your taxes. However, taxes must be declared and paid.
For other debts such as credit cards, we may not be responsible for payment, even if you are an Authorized User. But don’t be surprised if you get a call from a debt collector. The CFPB noted that while a debt collector can contact a surviving spouse and mention a debt, that doesn’t mean you are responsible for paying it. A debt collector cannot say you are responsible if you are not responsible for the debt.
Business Insider reports that other types of unsecured debt, such as student loans and personal loans, are typically handled by estate administration bodies if funds remain. If someone dies with federal student loan debt, that debt is forgiven. However, private student loan lenders may require repayment of the debt, so if you are co-guarantor on the loan and the estate cannot repay, you may be held responsible for repayment.
Consolidating debt after the death of a loved one can be a complicated process, so the CFPB recommends seeking help from professionals who charge no or very low fees. . For example, you may be eligible for free legal aid depending on your income. Contact your local bar association or Find a legal aid office in your area.
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Another resource is Aged care searchis a public service of the U.S. Administration on Aging that connects older adults and their caregivers with local support resources, including free legal aid for many older adults.
Michael Keenan Contributed the report for this article.
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This article was originally published on GOBankingRates.com: What debts will you be responsible for if a family member dies?
