Creditors get to lay the first claim on a deceased person’s property
Certain laws on debts say that the creditors have the right to claim what was owed by the dead person in question. This is not just about the rights of the creditor to lay a claim on the dead person’s will. The fact that makes it all the more important is that creditors get the first priority in this case. The creditors will have to be paid before the executors can go ahead with further procedures. This is very unfortunate, but that’s what the fact is all about. Needless to say, had the dead person opted for debt settlement or debt consolidation and successfully got rid of debts, there would be no such obligations to the creditors whatsoever.
The following are some laws and facts regarding debts owed by a deceased person.
Asset distribution
Any property owned by the deceased during his/her death is the deceased’s ‘estate’. The heirs must go to the probate court to file the ‘estate’. The ‘estate’ is obliged to pay all of the debts to the respective creditors before the probate court approves of its distribution amongst the heirs. If the ‘estate’ is inadequate and found to be unable to pay off the creditors, the family members or relatives of the deceased are no longer liable for the deceased debts. That is to say, the creditors can’t pursue relatives of the deceased for the debts. Well, in case of secured debts, creditors can always repossess the property against which the loan was taken out.
Tax Debts
It is for the deceased’s estate executor to make sure someone acts as a representative and files an income tax return on behalf of the dead person in question. A joint tax return may also be filed by the spouse. This will be for the year of occurrence of death. The deceased’s spouse is liable to pay the IRS tax debt accrued by his/her partner. The income tax payable will be not only for the year of death, but for the previous years as well. Family members other than the deceased’s spouse will not be held responsible for the deceased taxpayer’s debts. Well, it is important that the tax debt is paid off by the deceased’s estate before inheritance claims are laid by the heir.
Credit Card Debt
The credit card debt accrued by the deceased is not passed on to the deceased’s relatives in most of the US states. However, it is for the deceased’s estate to pay off the credit card debt completely. Well, if there is someone else who has signed for the deceased’s credit card, he/she is liable to pay off the debt as well.
The state laws on credit card debt repayment vary greatly. Credit card debt is passed on to spouses in states that have community property laws in place. Each case is judged by the probate judges. The Credit Card Act of 2009 says that a credit card company has no right to charge extra fees or penalties to the account of the deceased when the settlement is being done under a legal system.
Unavailability of estate
In case no estate has been left behind by the deceased, the family is to send a letter along with the death certificate to the creditors with proper explanation on the unavailability of estate. In such cases, debts are generally forgiven and account closed. There are some creditors that may ask the survivors to file estate with the probate court and prove the unavailability of funds to pay off debt.
The aforesaid are the laws on debts owed by a deceased person. It is important to take steps accordingly to get the creditors off the tail sooner.
By Andrew Jackson,financial counselor associated with Oak View Law Group, APC for over 4 years. He analyses people financial situation minutely and advises on different debt relief options available to people. He also helps people managing budget to keep an eye on their financial planning.
