Death and debts: what debts of Americans fall on the shoulders of their heirs - ForumDaily
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Death and debts: what debts of Americans fall on the shoulders of their heirs

What you need to know about paying off a debt of a loved one after his death, informs Money Talks News.

Photo: Shutterstock

“It was less than a week after my husband died when we received the first call from a debt collector. We had no credit cards or loans, but there were several medical bills that we didn’t pay, mostly because we were busy with more important things,” says the widow.

“When the caller asked for my husband and I explained that he was dead, I received kind condolences, followed by a question whether I was his wife. They told me it was time to pay. I replied that I first needed to pay for the funeral. A few days later they called me back, and then the call came a couple of days later,” she says.

Lenders often push grieving relatives to pay the bills of their deceased loved ones.

Keep in mind that laws differ from state to state, so this information should not be construed as specific advice for your situation.

For advice specific to your specific situation, seek the assistance of a competent financial professional or real estate lawyer.

Most people don't need to worry about inheriting debt.

If you are wondering if you are responsible for the debt of a loved one, the answer is no.

Debt usually does not pass to the heirs.

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Lenders usually don't tell you this, and they often rely on your guilt to pay off those debts.

They may be kind and helpful, but ultimately their job is to get you to pay.

There are exceptions where you have to pay.

The FTC cites four cases in which you may have been hooked on debt after the death of a loved one:

  • You are signed on to pay off the debt.
  • You live in a state with Community property law.
  • You are a surviving spouse and state law requires you to pay certain debts, such as medical bills.
  • You are legally responsible for disposing of the property, but you have not done so in accordance with applicable state law.

The property is liable for debts

Although you are not on the hook for your loved one's debt, the deceased's assets typically remain "debt currency."

In other words, your loved one’s leftover assets will often have to be used to pay off any outstanding debts.

Lenders can bring claims against real estate in court to ensure payment of these claims.

Money Talks News founder Stacy Johnson says: “When a person dies, his property is born. And this property is being sold. Debts are paid from this money, and the rest is distributed to the heirs. If that's not enough to pay off the debt, well, the creditor loses. "

If the price of the property is insufficient to pay creditors, then the property is considered insolvent.

In this case, the outstanding debt should disappear.

However, this will not stop some companies from demanding payment, especially if you are a survivor.

Stacey continues: “The bottom line is this: don't pay off debts that you don't have. And if in doubt, discuss it with a lawyer. "

One final note about property

It is important to note that not all assets are considered part of the property.

Those that are excluded from inheritance are technically known as "non-inheritance assets."

They typically include assets that are owned or jointly owned by a beneficiary.

In other words, you don't have to worry about your spouse's life insurance policy being canceled to pay off his or her credit card.

As a rule, spouses are not responsible for the individual duty of the husband or wife.

So, if John Doe had opened a credit card in his name only, Jane Doe's widow would not be responsible for paying it off - in most states.

This is because most states have adopted a property ownership system known as “common law,” according to the IRS.

A federal agency says of the system: “The theory behind common law is that each spouse is an individual with separate legal and property rights. Thus, as a rule, each spouse owns and taxes the income that he or she receives. "

It's different if you live in one of the nine states where the so-called Community property law is in force.

Some states with spouses' Community Property Act have different rules.

Under the Community property regime, depending on jurisdiction, property belonging to one of the spouses prior to marriage, as well as gifts and inheritances received during marriage, are treated as separate property of that spouse in the event of divorce or death of the spouse.

In these states, if John Doe opens a credit card in his own name, the responsibility falls on John and Jane Doe.

According to the IRS, in states where Community property, spouses "share the debt."

Depending on state law, a spouse's creditors may be able to gain access to all or part of the common property, no matter what it is called, in order to pay off the debts of either spouse. "

States with Community Property Law:

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

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