It is one thing to fix your debt problems, it is another if you have to fix one that you did not make. This is a dilemma for people who have a spouse or parents that are buried in debt. In case something happens to them, will the spouse or child be responsible for the debt problems left behind? Or will they be exempt from carrying the responsibility that their loved one was unable to attend to?
Three questions to ask when faced with debt after death
Based on the law, debts are not really inherited. However, there are three important questions that needs to be asked before you can be certain that you will not be affected by the debt that your deceased loved one was unable to solve.
What does the state laws say about debt after death?
State laws have different conditions about what happens to debt after death. While it may vary, there are only two important laws that you need to look into.
Community property. If you live in a community property state, that means the husband and wife own properties together – including debts. Any debt incurred by one will be co-owned by both. That means, the surviving spouse will have to pay off any debt left behind after the death of their significant other. This is automatic in the 9 states that implement this law: Washington, Arizona, Louisiana, California, Nevada, Texas, Wisconsin, Idaho and New Mexico. Alaska does not mandate this law but couples can choose to subject their marriage under this law.
Statute of limitations. You also have to find out the statutes of limitations on debt in your state. This simply refers to the period that begins when the debtor first defaults on payments. There is a certain timeframe that the creditor or collector must act or file a lawsuit against the debtor and the latter must respond. The lowest is 4 years while the longest is more than 10 years. If the debt goes beyond the statute of limitations, the creditor is no longer allowed to come after the debtor (or surviving spouse) for the debt made.
Does the deceased own estate properties?
The second question that you need to ask is whether the deceased debtor has an estate. If they do, the law gives creditors the right to seize these assets – even if the will and testament of the deceased gave it away as inheritance. Whatever cannot be paid off through the estate will have to be forcefully forgiven by the creditor. The heirs of the deceased will have to give over the properties – unless they want to agree that they will take over the debt payments just so the inheritance stays with them.
Are there co-signers to the debt?
The last question involves co-signers for the debt. If the spouse, child or relative co-signed the debt, then they automatically have to resume paying off the credit obligations. There is really nothing much that can be done to avert this as the co-signing makes them equally responsible for the debt owed.
Important tasks after a loved one leaves debt
There are many things to be done when a loved one passes on – even more so when they leave debt problems. As the surviving spouse, child or relative, it is up to you if you wish to help clean the debts of your loved one. Unless of course you are mandated by the law to take up the burden.
Aside from the three considerations mentioned above, here are some tips that you should do when an indebted relative passed away.
Call the creditors of the debtor to update them of the news. If there is an executor of the last will and testament, you must direct the creditors to them to coordinate the liquidation of any properties.
Make sure the executor coordinates with the credit bureaus too. The accounts of the deceased must be marked with “deceased: do not issue credit.” That way, the dead will not be used in identity theft.
Forward the death certificate of the deceased to creditors, lenders and credit bureaus and ask for a return receipt.
Stop using credit accounts of the main cardholder. Sometimes, spouses share credit accounts or parents give their children the right to use their credit cards (or something similar). The surviving spouse/relative can ask for the account to be transferred in their name if they want to. This will be considered a new application though.
Try to negotiate with creditors about debt that you co-own with the deceased. In case you are responsible or you decided to be responsible for the debt of your loved one, try to negotiate with the creditor for a payment plan that you can afford.
Ask for help when necessary. Sometimes, things get too complicated and you may want to consider hiring a professional lawyer to explain things to you. The documents can get tedious and if you make a mistake, that can cost you. If you are short on cash and you wish to get free legal help, you can visit Lawhelp.org to find attorneys who are willing to do pro bono work for you.