Since outstanding balances will not disappear when a person dies, the estate executor must fulfill any and all valid debts before disbursing inheritances.
The executor is responsible for notifying creditors of the deceased's death, and they generally have between three and six months to make a claim. The executor is not responsible to personally pay any of the estate's debts unless they were a co-signer or joint owner.
If there's no money in their estate, the debts will usually go unpaid. For survivors of deceased loved ones, including spouses, you're not responsible for their debts unless you shared legal responsibility for repaying as a co-signer, a joint account holder, or if you fall within another exception.
Creditors have a right to hold the personal representative, administrator, or executor of an estate liable for debts the deceased had not yet paid under certain circumstances. For example, if there's proof of the executor mismanaging the estate's assets, creditors could pursue legal action.
After your loved one dies, you will need to inform creditors of their death. From there, creditors have a time limit to submit claims and you will have to respond within a certain time frame. Overall in California, creditors have only one year to collect on a debt. In general, you cannot inherit someone else's debt.
If the estate runs out of money (or available assets to liquidate) before it pays all of its taxes and debts, then the executor may need to petition the court to declare the estate insolvent. At that point, the estate must pay off as much debt as possible in the order determined by state law.
For example, retirement accounts, IRAs, both qualified and depending on state laws, and some estate plans. Those are generally exempt, although there's special rules for those. Life insurance, that's another exemption. Creditors in many circumstances can't reach assets.
Does credit card debt go away after 7 years? Most negative items on your credit report, including unpaid debts, charge-offs, or late payments, will fall off your credit report seven years after the date of the first missed payment. However, it's important to remember that you'll still owe the creditor.
However, once the three nationwide credit bureaus — Equifax, Experian and TransUnion — are notified someone has died, their credit reports are sealed and a death notice is placed on them. That notification can happen one of two ways — from the executor of the person's estate or from the Social Security Administration.
Executors who violate their duty may face legal action by beneficiaries or creditors, although they cannot be held accountable for a decline in asset value unless it resulted from their unreasonable actions.
If an executor does not do their job the right way, the beneficiaries of the Will can potentially sue for “breach of fiduciary duty”. In that instance, the executor can be held personally liable to all of the beneficiaries under the Will.
While executors have discretion in some areas, your core decision-making is bounded by: The deceased's will. You must follow their distribution wishes rather than diverging based on your own judgments.
And in nine “community property” states, including California and Texas, spouses may be equally responsible for debts incurred during the marriage, including medical debt. Other states may have laws that hold spouses responsible for paying certain essential costs, like health care.
Spending all the estate assets can also lead to fines and repercussions for the estate if there is not enough money left to pay for important expenses like estate taxes and creditor debts. Fortunately, the law provides potential recourse for beneficiaries who have experienced theft at the hands of an estate executor.
The spouse or executor of the estate may request the deceased person's credit report by mailing a request to each of the credit reporting companies. Send a letter along with the following information about the deceased: Legal name. Social Security Number.
Most states or jurisdictions have statutes of limitations between three and six years for debts, but some may be longer. This may also vary depending, for instance, on the: Type of debt. State where you live.
In most states, the statute of limitations for collecting on credit card debt is between three and 10 years, but a few states allow for longer periods, extending up to 15 years.
The 7-year rule means that each negative remark remains on your report for 7 years (possibly more depending on the remark). However, after that period has ended, a remark will most probably fall off of your report.
If the estate goes through probate
The tricky part of this process is how any outstanding debts that need to get paid will be settled. While the creditors can't claim the house itself, they can make claims in an amount that might require you to sell the house.
If there isn't enough money to pay everyone, the estate could run out of money before paying those with priority. Or an executor might steal money from the estate that otherwise would have paid off a prioritized debt. In such cases, the injured creditor can sue the executor personally.
If a creditor has already filed a claim against your inheritance and won in court, they can also go after your assets. In this case, it's best to consult with an attorney specializing in debt collection laws to help determine what steps need to be taken next and whether challenging the creditor's claim is worth it.
It's important to remember that credit card debt does not automatically go away when someone dies. It must be paid by the estate or the co-signers on the account. You'll also want to notify the appropriate entities such as credit card companies, credit bureaus and any services that are set up with automatic payments.
The executor of the deceased person's estate is responsible for paying off any debts before distributing other funds or assets to heirs. In fact, the executor can become legally liable for some debt if proper procedures are not followed. The executor is normally named in a person's will.
If you contact the bank before consulting an attorney, you risk account freezes, which could severely delay auto-payments and direct deposits and most importantly mortgage payments. You should call Social Security right away to tell them about the death of your loved one.