Most people today die with some amount of debt, either large or small. The heirs and loved ones of the deceased may not know what to do about the debt. They may not know how to approach distributing their estate when they find out there are outstanding debts. So what debts have to be paid, and how does the process work? Here is a short guide to dealing with debts and creditors after a loved one passes on.

What Happens if Someone Dies with Unpaid Debt?

The general rule across all jurisdictions is that outstanding debts must be paid by the deceased’s estate before any other property or assets can be distributed to their heirs. So who takes care of this? If the person has died with a valid will in place, they have already named someone to oversee their estate, known as an executor. This person is given the legal responsibility to carry out the deceased’s wishes in terms of not only who receives what property, but also for taking care of any possible debts that the person may have left behind. 

If someone has died without a valid will, their estate will go through the legal process of intestacy. Here, state law dictates who is entitled to inherit from the deceased and in what portions. If this is the case, a probate court judge will appoint someone to perform the executor’s duties, called an estate administrator or personal representative, depending on the jurisdiction. It is then that person’s responsibility to pay the deceased’s debts and distribute the estate as ordered by state law and the judge.

What Does the Executor Do?

Most people worry that they will have to take money out of their own pockets to pay for a family member’s debt after they pass, but this is generally not the case. Instead, the executor or administrator is charged with paying off as much of the debt as possible with assets from the deceased person’s estate. This may mean selling off some assets of the estate. 

If the debt is paid off with property or other assets remaining, the executor can then distribute the rest to the person’s heirs. If only part of the debt can be paid off, the executor and the heirs are under no obligations to use their own money to cover the rest. Once it is gone, it is gone. 

Who Gets Paid First if There are Multiple Debts?

When an estate is worth more than it owes, it is called a solvent estate. But when the amount of debt is greater than the estate has, it is deemed insolvent. Because there are cases where a person’s debts will be more than their estate is worth, there is a hierarchy as to who will get paid first. 

At the top of the list are secured debts like mortgages and certain medical bills. Other obligations like student loans, credit card debt, and other unsecured debts are of a lesser priority. If there is no money to pay these, the creditor is generally out of luck. None of the deceased’s heirs can be forced to cover the rest of their obligations unless they are already legally tied to the debt through being a co-signer or some other way. 

What Happens if You Inherit an Estate with Debts?

Although most people assume that inheriting via a will or other means will benefit them, the reality might be that the estate owes more than it can pay. In addition, if there are liens attached to property, a lawsuit against the estate or an estate asset, the person set to inherit might not be willing to take on the legal or financial burdens that come with the inheritance. 

Because estate distributions are legally classified as a gift a beneficiary/heir has every right to formally decline the inheritance, known legally as the right to disclaim

Can Creditors Call Family Members to Collect Debts?

When the executor submits the deceased’s will for probate, the court officially names them as the representative of the estate, which includes debts. So if a creditor wishes to collect a debt, they should contact the executor or their attorney and not the deceased’s family members. 

As long as the family member does not already own a part of the debt through co-signing or another method, creditors should not be contacting the deceased’s family members for money. If you or another family member keeps getting harassed by lenders or collection agencies, you should contact an attorney as soon as possible. 

Do I Need an Attorney to Handle Estate Debt Issues?

Dealing with the estate of a loved one can be difficult, both emotionally and logistically. An attorney will guide you through the probate process and help you deal with creditors. 

In addition, an estate planning/probate attorney can also help on the front end, helping you formulate an estate plan to reduce the burden and stress on your loved ones down the road.