What happens to their debts when someone dies?

On Behalf of | Feb 29, 2024 | Probate

When a person passes away, their debts don’t vanish. Instead, resolving these obligations falls to the legal process that is part of the deceased’s broader estate administration.

An estate executor or administrator is tasked with identifying and valuing the deceased’s assets and liabilities. They must then use the estate’s assets to pay off debts before any distribution to beneficiaries can occur. This process helps to ensure that creditors receive payment according to the legal priorities set by estate law while safeguarding the deceased’s heirs from assuming their debt load.

Estate assets pay debts

An estate’s assets include everything the deceased owned at the time of death, ranging from property and bank accounts to personal possessions. If the estate lacks sufficient assets to cover all debts, it is considered insolvent, and specific legal rules determine the order in which debts are paid.

Typically, secured debts, such as mortgages or car loans, are prioritized. Unsecured debts, including credit card bills and personal loans follow those. Only after all debts and taxes have been paid will the remaining assets be distributed to the heirs according to the will or Indiana intestacy laws.

Responsibility of loved ones

It is a common misconception that family members or loved ones inherit the deceased person’s debts. In most cases, individuals aren’t personally responsible for a deceased relative’s debts unless they co-signed a loan or were joint account holders.

Creditors may contact the deceased’s family members to collect on debts, but these communications should be directed to the estate’s executor or administrator. Loved ones shouldn’t agree to take on debt obligations.

Understanding how debts are handled when a loved one dies can better ensure that nobody is taken advantage of by creditors. Referring debt collectors to the estate administrator should be automatic, and that administrator can seek legal guidance if they have questions about how a particular obligation should be addressed.