The debts of an estate are still owed to creditors, but only the executor of the will is authorized to make payments on debts. Once the assets of the estate have been depleted to repay creditors, the rest of the assets can be legally distributed to the heirs. If there are no assets remaining after the estate has paid its debts to the fullest extent possible, all debts are discharged. Companies may still attempt to collect on these debts from heirs and family members, but they have no legal power to enforce the collection.
The Role of the Executor
The role of the executor is to handle all affairs of the estate according to the instructions of the will. If no will was left behind, the executor is charged with managing the affairs of the estate as they see fit. They have fiduciary responsibility to the heirs, which means that they are legally obligated to act in the best financial interests of the estate. Creditors receive absolute priority over all assets of the estate. Estates can't declare bankruptcy to discharge debts. Only the executor is authorized to make payments on debts owed by the estate.
Steps of Post-Mortem Debt Settlement
Once the estate holder dies, the executor is obligated to inform all creditors of the event as soon as possible. Any service providers such as utilities companies, lawn care companies, media subscription companies and others should also be immediately informed of the death to prevent any bills becoming unpaid and going to collection.
The executor must take inventory of all existing assets and determine how best to satisfy the obligations of the estate. If assets are distributed to heirs illegally before the debts are satisfied, the creditors of the estate are allowed to pursue collections against the heirs that improperly took assets from the estate.
Exceptions
Creditors can collect from heirs and family members if some of the estate property was communal or owned by multiple family members. If anyone cosigned loans made out to the deceased individual, they will be liable for those debts. Assets of the estate exempt from estate taxes, such as life insurance policies and assets placed in a trust can't be collected on by creditors. Otherwise, no heir or family member is obligated to cover the unpaid bills or debts of an estate. Only the executor can legally make payments for the debts of an estate.
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