Jackson, Mississippi Wills and Estates Lawyer Answers, “What Happens to a Deceased Person’s Debts When They Die?”

Mortgages, loans, credit cards, even medical bills…nearly every wills and estates lawyer in the Jackson, Mississippi Metro Area is asked about what happens to a person’s debt when they die. It doesn’t seem quite fair for your descendants to be saddled with your debt, but it also doesn’t seem fair for creditors not to get the money that is owed to them, either. There are a couple of scenarios which may play out when someone dies with debt. Both require the effort of the Personal Representative (or executor) and are based on your estate. First, if your estate in Hinds, Rankin or Madison County is solvent, then the deceased person’s debts will be paid from that before heirs get their share. “Solvent” refers to the fact that the assets of the estate add up to be worth as much as or more than the amount of debt owed. So, if the deceased’s estate is worth $50,000 and he or she has debts totaling $25,000, the estate would be solvent. After the debt is paid off, the remainder of the estate can be distributed to the heirs. If, however, the estate doesn’t hold enough value to pay for outstanding debts, it is considered “insolvent.” In these cases, the Personal Representative will have to spend some time going through the debts, possibly with an attorney, to prioritize which debts get paid first, in full, partially, or not at all. There are state and federal laws which help to determine how this process works. For example, state and federal regulations may state that medical bills take priority over credit card debt. In situations where the estate is insolvent here in < insert city>, the heirs will not be entitled to the assets, even if there was a will or trust in place. On the other hand, they do not have to take on the responsibility of paying for the debt, which is at least a relief. Still, it can certainly be a disappointment to discover that the home or other assets your kids expected to inherit will have to be sold off to pay for debts instead. In some states adult children may be expected to pay outstanding nursing home costs. According to USA Today, more and more baby boomers and seniors are living in debt. There are several potential reasons for this, from medical and funeral expenses to unrealistic expectations about what is “deserved” at that point in life. Unfortunately, the final outcome often ends up costing your heirs some or all of their inheritance. In order to ensure that your estate is solvent—or better yet, to leave no debt behind for your Personal Representative and heirs to deal with—it’s a great idea to work with your Jackson, Mississippi wills and estates attorney to set payoff goals and keep yourself and your estate on track. To get started with this process, simply call our Clinton, Mississippi law firm at (601)925-9797 and asked to schedule a complimentary consultation with the mention of this article.

Who is Responsible for Paying Debts?

When a person passes away, their debts don’t just vanish into thin air. Instead, the responsibility for paying those debts falls on the deceased person’s estate. The executor of the estate, also known as the personal representative, steps in to settle the deceased person’s debts using the estate’s assets. This means they will need to address any outstanding credit card debt, medical bills, and other obligations.

In some cases, family members might find themselves on the hook for certain debts. This typically happens if they were co-signers on a loan or joint account holders. For example, if you co-signed a personal loan with the deceased, you would be responsible for paying it off. However, if you were not directly involved in the debt, you generally won’t have to use your own money to pay it off.

Types of Debts and Their Treatment

Not all debts are created equal, especially when it comes to settling them after someone passes away. Secured debts, like mortgages and car loans, are usually paid off by the estate using the asset that secures the debt. For instance, if there’s a mortgage on a house, the estate might sell the house to pay off the mortgage.

Unsecured debts, such as credit card debt and medical bills, are a different story. These debts are paid off using whatever assets are available in the estate. If the estate doesn’t have enough assets to cover all the unsecured debts, some of these debts may end up being forgiven.

In community property states, things can get a bit more complicated. Here, the surviving spouse might be responsible for paying off debts that were accumulated during the marriage, even if they weren’t directly involved in incurring those debts.

Protecting Heirs from Debt Collectors

Debt collectors can be persistent, and they might contact family members to try to collect on a deceased person’s debts. However, it’s important to know that family members are not responsible for paying these debts unless they are co-signers or joint account holders.

The Fair Debt Collection Practices Act (FDCPA) offers protections against harassment and deceptive practices by debt collectors. If a debt collector contacts you, you have the right to request that they stop and to ask for information about the debt. If you encounter any issues with debt collectors, you can report them to the Federal Trade Commission (FTC) or your state attorney general’s office.

Using Life Insurance to Pay Debts

Life insurance can be a valuable tool for paying off debts after a person passes away. The death benefit from a life insurance policy can be used to settle outstanding debts, such as credit card debt and medical bills. In some cases, the death benefit may be exempt from creditors, meaning it cannot be used to pay off debts.

Using life insurance to pay debts can help protect heirs from debt collectors and ensure they do not inherit any outstanding debts. This can provide peace of mind and financial security for your loved ones during a difficult time.

Avoiding Debt Collection Scams

Unfortunately, debt collection scams are all too common, and family members may be targeted by scammers after a person passes away. To avoid falling victim to these scams, be cautious of debt collectors who contact you and request payment. Always verify the debt collector’s identity and the debt they are trying to collect.

Never provide personal or financial information to debt collectors without verifying the debt first. If you suspect a debt collection scam, report it to the FTC or your state attorney general’s office. Staying vigilant can help protect you and your family from fraudulent schemes.