If you have aging parents, for instance, you may be worried about having to assume responsibility for their mortgage payments, credit cards or other debts. When that person passes away, their estate is responsible for paying any and all remaining debts. The money to pay those debts comes from the asset side of the estate. In terms of debt repayment, executors are required to give notice to creditors who may have a claim against the estate.
Not all assets in an estate may be used to repay debts owed by a deceased person. So it may be willing to negotiate a lower payment, Hartnett said. Medical debt: If your parent received Medicaid , the insurance program for people who can't afford care, the state where your parent died can recover the payments it made from the time your parent was 55 until death.
A house is the only substantial asset a person may keep and still qualify for Medicaid. So the state may place a lien on your parent's home to recover payments. Some states, however, may be willing to negotiate and let the executor pay less than the total due, said attorney Howard Krooks of Elder Law Associates PA. The state may not, however, ask you to use your own funds to pay the bill. Nor is the state allowed to pursue payments during the lifetime of a surviving spouse.
The state is also barred from collecting if you or an adult sibling lived in your parent's home for at least two years before his or her death and provided care that delayed your parent's admission to a nursing home or other medical facility. If your parent wasn't on Medicaid, but died with unpaid hospital or doctor bills, the estate is responsible for paying them if it has the money. But check state law. Close to 30 states have what's known as "filial responsibility" statutes.
Those require adult children to pay for a deceased parent's unpaid medical debts, such as those to hospitals or nursing homes, when the estate cannot. Mortgage debt: Inheriting a home with a mortgage is a very complex issue. So talk to an estate lawyer familiar with all state and federal laws governing the issue.
These laws are not usually enforced in terms of medical debt, however, since Medicaid will often cover it. Credit card debt is similar, in that it depends on the circumstances and where you live.
If you and your loved one had a joint credit card account or you were a cosigner on a loan, you likely will be responsible for the outstanding debt. If it was an individual account, you may owe nothing—unless you live in a community property state, in which any debt incurred during marriage is considered joint. If you're not in a community property state and you weren't a cosigner or joint account holder, you shouldn't inherit their credit card debt.
Again, laws vary by state, so make sure to check the laws where you live or hire an attorney to help you understand your debt obligations. Certain types of assets are generally protected from being claimed by creditors when your loved one passes. Even if your spouse or family member has outstanding debt, these assets are considered "non-probate assets" since they have a designated beneficiary or what's called joint tenancy with rights of survivorship.
This means you can bypass the complicated probate court process and receive the asset directly, regardless of whether there's a will or not. When you lose a loved one who had outstanding debts, debt collectors may come calling.
They are allowed to contact a deceased person's spouse to identify the estate's executor or administrator. However, they aren't allowed to claim that you're responsible for paying off these debts unless you truly are legally obligated like in the case of joint debt. While they may believe they are acting within their rights, it's possible a debt collector will try to collect debt that isn't valid or has passed the statute of limitations. Make sure to familiarize yourself with debt collection laws and understand how to deal with debt collectors.
The Fair Debt Collection Practices Act FDCPA regulates what collectors can and can't do: They're not allowed to threaten you, harass you with repeated calls or claim they'll take your property they're not entitled to, among other things. If you believe a debt collector is violating your rights, you can send them a letter asking them to stop and report it to your state's attorney general or submit a complaint with the CFPB.
If debt collectors insist you're responsible for your loved one's outstanding debts and you're unsure how to proceed, consider hiring a lawyer. They can determine whether these claims are valid and help you deal with collectors. If you can't afford it, look for legal clinics or legal aid offices in your area that offer free or discounted services. Make Sure Creditors and Credit Bureaus Are Updated The executor of your loved one's estate which may or may not be you needs to send a copy of the death certificate to their creditors.
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