When an individual dies, it may be unclear who is responsible for paying any debts. The responsibility for paying usually falls to the estate and its executor. Prior to distribution of assets, the estate typically pays off the debts of the deceased, legally referred to as a decedent. If there are not enough assets to cover the debts, a debt collector may try to contact relatives. Insurance can reduce financial risk regarding the debts of the deceased.
A House With a Mortgage
The heirs generally do not have financial responsibility for the decedent's debts. However, complications arise when it involves an asset that is not fully paid off, such as a house. The bank reserves the right to sell the house and recoup its losses if the person inheriting it cannot afford to make payments. This situation can be problematic for those with young children and for a spouse who does not work.
Credit Cards
In general, if the estate cannot pay off credit card debt, the decedent's related heirs have no responsibility to pay the amounts. The credit card companies usually write off the amount. If a debt collector contacts any relatives directly, the relatives have the right to put the debt collector in touch with the administrator of the estate. They also have the right to report any contact that could be considered harassment to the Federal Trade Commission and Attorney General's Office.
Education Loans
The responsibility for paying education loans typically falls to the immediate relatives if the estate is not large enough to cover the amounts. However, the relative should contact the lender and explain the situation. Usually, at least part of the debt will be forgiven in light of the situation, especially if it is an untimely death.
Life Insurance
When a person knows that he has a large amount of debt outstanding, particularly on a tangible asset such as a home, taking out a life insurance policy to cover the amount may be helpful. By doing so, and ensuring there is enough money to cover what he owes, he protects his spouse or children who live there. Using a policy to protect loved ones by covering the costs of a funeral and probate also may benefit survivors.
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