When an individual passes away, their debts do not magically disappear. How does the debt get managed when the person who incurred the debt is no longer around to pay his or her dues? The answer to this question is dependent on a number of variables, like whether the deceased’s estate goes through the probate process and if they leave behind enough money with which to fulfill outstanding debts.
For the benefit of companies to whom the debts are owed, we will go through the options for handling the debt for a deceased client or customer.
Generally speaking, heirs and loved ones are not responsible for the debts. The only exception to this statement is if they are co-signed or guaranteed debts. In that case, the company to whom the debts are due can legally turn to the other signer if one party is unable. There are also certain states that have community property, meaning that husbands and wives own their property and debts equally. In these states, the remaining spouse is responsible for paying the debts even if they did not co-sign for them. These “community property” states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
The Probate Process
A legal process called probate has two basic steps: it pays any debts the deceased person owes and then transfers assets to the beneficiaries. A probate is needed to disperse the ownership of individually owned assets appropriately when someone dies. The person’s will is involved in the probate process and is overseen by a state probate court.
The process of the probate court generally follows these basic steps: choosing and swearing in a personal representative for the deceased, notifying the creditors and public of the death, taking inventory of the property, and distributing the estate/assets.
Debts/bills are taken care of first when it comes to distribution, before the other beneficiaries receive any portion of the estate. If there is no monetary value left in the estate, however, there is no payment to the creditors.
Collections agencies understand the stress incurred and protocol needed in following up on unpaid debts—it’s what they do! If you are in need of assistance with this process, a collection agency would be a great resource for getting your fair share when it comes to the debt of a deceased client or customer.