: 13 September 2024

Responsibility for Paying Debts After Death

When a family member dies, what happens to their debts?

Generally, the debt ends with the person who passed away, but this is not always the case. The following should be considered before a debt is settled:

Was the deceased married?
Did others co-sign on loans or was there more than one person listed on the debt?
Are there any properties or assets that were left behind?

What happens to secured debts?

Secured debts are purchases made with a loan for items like a car or a house.  These debts do not disappear after someone dies. After death, the debt may:

Be signed over to another person and they continue to make the payments, or
Be sold, or
Go into default and the item is repossessed by the loan company.

For instance, if a car loan is signed over to a child of the deceased, they would be able to keep the car as long as regularly scheduled payments were made on time.

What happens to credit card, car loan, and mortgage payments if the person was married?

In most cases, these debts still must be paid by the surviving spouse. Arizona is both a community property and a community debt state. When a married couple incurs debt, both spouses are considered responsible for the debt.  It does not matter whether both names are on the account. Examples of things the surviving spouse would be responsible for include credit card balances, mortgages, car loans, etc.

What if a loan was co-signed by someone other than a spouse?

If a loan has a co-signer, the co-signer is responsible for the remainder of the loan after someone passes away; this is called a joint debt.

If a parent co-signs a loan for their child and the child dies, the parent will continue to be responsible on the loan. If a parent and their child share a charge account and the parent dies, the child will be obligated to pay off the balance.

What happens to student loans when someone dies?

It depends on if it was a government-issued loan or a private loan. Federal student loans are discharged when someone dies. To do so, the family applies for a loan discharge due to death and ask for the remaining balance to be forgiven.

If the loan was provided by a private bank or agency outside of the federal government, then the loan may still be subject to repayment by a surviving spouse or co-borrower.

If someone has died with credit card or charge account debt, would their family have to pay it?

The answer is no. According to the Federal Trade Commission (FTC), a surviving relative has no obligation to pay the debts of the deceased unless they signed on the account. Unless they are joint owners of the account, parents have no obligation to pay bills incurred by deceased, adult children, and children are not obligated to pay their parents’ debts.

Debt Collectors

Can debt collectors call relatives of the deceased and ask for payments?

The Federal Fair Debt Collection Practices Act, a rule under the Federal Trade Commission (FTC), prohibits debt collectors from using abusive, unfair, or deceptive practices to collect debts. That does not stop collection agencies from trying to persuade heirs to pay their dead relatives’ obligations.

What if debt collectors continue to call about the debt?

There are a few options for those that are being called by debt collectors:

If the estate is going through probate, direct the collection agent to the personal representative. 
If there is no probate and there is not a co-signer on the account or loan, tell the collection agent to stop calling. 
If they persist in their collection efforts, send a certified letter and pay for a return receipt. 
If they continue calling, you may want to contact the Arizona Attorney General’s Consumer Fraud Division and report the credit agency.

Estates

What is an estate?

An estate is a legal entity responsible for carrying on the business of the deceased.

If there is an estate, what happens to the deceased person’s debt?

When there is an estate that needs to go through probate, the deceased person’s debt transfers to the probate estate.

What is the responsibility of the personal representative when there are remaining debts?

The personal representative (executor) is responsible for:

Paying all known bills out of the assets of the estate. 
Writing a letter to all known creditors telling them of the death. 
Publishing a notice in a local paper advising all unknown creditors of the death and of their obligation to notify the personal representative of their claims in the allowed timeframe.  A.R.S. § 14-3801

What if the estate is not large enough to cover the costs of the debts?

If the assets of the estate are insufficient to pay the debts, the personal representative will use what the deceased left to pay the creditor claims. The heirs will get nothing, but neither will they be required to pay the rest of their dead relative’s bills.

Can debts be taken from a life insurance policy or investment account?

Life insurance proceeds, joint bank accounts, and joint investment accounts fall outside of probate. When someone dies the beneficiaries of their life insurance policy have that money comes directly to them.  It does not go through probate and cannot be garnished to pay off the deceased’s bills. Joint bank and investment accounts are treated in the same way. If the deceased has a joint savings’ account with another at the time of their death, the account then belongs to the surviving person listed on the account.

Tags: Probate

Money and Debt