What happens to debts and loans after death in the USA

How do debts affect a surviving partner after the death of a loved one? Let's try to figure out what you need to know about paying your debts and partner loans after he left this world.

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The first collectors called me less than a week after my husband’s death, writes Marilyn LaPoncey specifically for the publication Money Talks News. We didn't have any debts or loans, but we did have a few unpaid medical bills, mostly because we were busy with more important things.

When they asked about her husband on that end of the line, I explained that he was dead. I was given courteous condolences, followed by the question of whether I was his wife. And cute said it was time to pay. When I explained that first I need to pay for the funeral, they said goodbye, only to call back in a couple of days, and then again and again.

Often, lenders push grieving relatives to pay the bills of their loved ones. And if you find yourself in a similar situation, this is what you should know. Keep in mind that laws vary by state, so this article should not be taken as definitive advice for your specific situation. For advice regarding your case, contact a competent financial professional or a real estate lawyer for help.

Most people don’t need to worry about debt inheritance.

If you're wondering whether you're legally responsible for your partner's or relative's debt, the short answer is no. Debt is usually not inherited. Creditors won't tell you this, and they will often try to pressure your sense of responsibility into paying off the debt. They may be kind and sympathetic, but ultimately their job is to make you pay.

There are exceptions when you really have to pay. The Federal Trade Commission cites four examples in which you may find yourself on a hook because of debts after the death of a loved one:

• you signed for one debt together;
• you live in the states where the property of the spouses is considered common (we will discuss this later);
• you are the surviving spouse, and state law requires you to pay certain debts, such as health bills;
• You were legally responsible for managing the property, but you did not do it in accordance with current state law.

And although you personally, as a rule, are not responsible for the debts of the deceased, his real estate (as assets remaining after it) refers to possible objects that can be used to pay any outstanding debts. Lenders can file property claims in court to help ensure payment of these claims.

Money Talks News founder Stacy Johnson says:

“When a person dies, his real estate comes to life - and his debts are paid off, and then what is left is distributed to his heirs. If that's not enough to pay off the debt, well... the lender loses."

Such property is considered insolvent. In this case, the unsecured debt must be canceled. However, it will not stop some companies from trying to call you for payment, especially if you are a surviving spouse, and not just a relative.

Stacy continues:

“The bottom line is: don't pay for something you shouldn't. And if in doubt, talk to a lawyer."

It is important to note that not all assets are considered part of real estate. There are property assets excluded from real estate that have a beneficiary or are jointly owned. In other words, you do not need to worry about your spouse’s life insurance policy being destroyed in order to pay with his credit cards.

In states where the property of spouses is common, different rules

Typically, spouses are not responsible for the individual debts of the husband or wife. So if John Doe opened a credit card in his name only, Jane Doe would not be responsible for paying it off - in most states. That's because most states have adopted a property system known as "common law," according to the Internal Revenue Service.

The federal agency says of this system: “The theory underlying the common law is that each spouse is a separate person with separate legal and property rights. Thus, generally, each spouse owns and is taxed on the income he or she earns.”

It's a different story if you live in one of the nine states that has what's called a "marital community property law." In these states, if John Doe opens a credit card in his own name, the debt becomes the responsibility of John and Jane Doe.”

“Depending on state law, a spouse’s creditors may be able to take over all or part of the marital property, no matter what it is called, to satisfy debts incurred by one spouse.”

These nine states are:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Some marriages in Alaska may also be unions in which the property of the spouses is considered common, but this is an optional rule.

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