If you’ve helped settle an estate before or even sorted through the belongings of a deceased love one, you’re probably familiar with the debt that continues to accrue following their death. Recent medical expenses and credit card bills are common, and children handling a parent’s estate are often concerned that they are responsible for paying this debt.
Family members are generally not obligated to pay the debts of a deceased relative from their own assets. If there are insufficient funds in the estate to pay the debt, it may go unpaid. Exceptions exist however, so it is important to consult with an estate attorney to determine whether you have personal liability on the debt.
Credit card companies often turn over delinquent bills to debt collectors. However, a child who has not co-signed on her parent’s credit card is not liable for this debt. Instead, the creditor must file a claim in the estate to get paid. The creditor may never get paid if it fails to file a claim in the estate within the creditor claim period, or if there are no probate assets available to pay the claim.
Consumers and family members are protected by the Federal Fair Debt Collection Practices Act. This prevents debt collectors from collecting debts in abusive or deceptive ways. Debt collectors may contact and discuss the deceased person’s debts with the spouse, guardian, or executor, or other person authorized to pay debts on behalf of the estate. They can also contact third parties to obtain contact information for these permissible contacts.
Even if you are authorized to pay the decedent’s debts, you may send a letter to the debt collector stating that you do not want to be contacted again regarding the debt. Once received, the debt collector may only contact you to confirm there will be no additional contact or to explain his intent to take specific action, such as filing a claim in the estate.
In Maryland, there is also an order of priority in which creditors get paid. Because a credit card company often has lower priority than other creditors, the credit card company may never get paid if there are insufficient assets in the probate estate. A mortgage company with a secured loan, the IRS and Comptroller, and your attorney are all creditors with higher priority than a credit card company with an unsecured debt. In an estate where there are insufficient assets to satisfy all of the claims, the executor must make payment in accordance with the statutory order of priority. Non-probate assets that pass directly to a beneficiary are out of reach from creditors because they do not become probate assets, or part of the estate.
The estate must pay property taxes and income taxes. If you’ve inherited property that is underwater, you should discuss your options with an attorney. The bank may agree to a short sale, foreclosure, or deed in lieu of foreclosure. If the house is sold for less than what is owed on the loan, the bank may make a claim against the estate for the difference.
If you are settling an estate, an estate planning attorney can assist you in determining what expenses and bills must be paid by the estate and the proper procedure for paying creditors.
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