Maryland's Credit Debt Laws at Death

Probate is a legal process that validates a decedent's last will and testament, distributes the decedent's assets and pays off all remaining debts. The state of Maryland has a fairly simple probate process for estates that leave a valid will behind, and the state laws are straightforward for estates without a will as well. Probate can get more complicated if the estate owes taxes, there are co-owners of property or joint account holders, or there is an extensive amount of debt.

Estate Executor

When a decedent leaves a valid last will and testament, he has usually named a specific individual to settle the affairs of his estate after his passing. The estate executor must notify creditors of the decedent's passing, inventory estate assets and have them formally appraised, and begin closing the estate by paying off debts in the order set out by law.

Intestate Estates

An intestate estate is one in which the decedent did not leave a valid will; instead, he passed away without testament. When there is no valid will for the estate, the probate court appoints a personal representative to carry out the final estate duties. A personal representative has all of the same duties that an estate executor does: Asset appraisal, debt payoff, and distributing the remaining assets to heirs. The biggest difference with an intestate estate is that the court selects which surviving heirs receive the remaining assets.

Creditor Notifications

A critical step in the probate process involves paying off all of the decedent's outstanding debts. When a probate case is opened, the executor or personal representative must send certified death notices to all known creditors. Creditors have six months to list their debt claims against the estate.

Creditor Payments

Estate assets cannot be distributed to heirs and beneficiaries until all of the debt claims have been paid in full. Debts are paid with the assets of the estate because surviving heirs cannot inherit debt. If needed, the estate executor or personal administrator will sell physical assets to generate the cash needed to pay off all debts.

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Recovery From Foreclosure & Bankruptcy

Serious credit situations, such as a bankruptcy and foreclosure, can cause significant credit damage and negatively impact financing options. Several factors can increase the chance of bankruptcy and foreclosure. But fortunately, recovery is possible wherein you can fix your low score and obtain future credit.

What is Bankruptcy?

Being bankrupt refers to being unable to meet financial obligations. Someone with a lot of credit card debt and other loans may consider filing bankruptcy after a drop in income. Once a debtor defaults on his bills, creditors may pursue collection attempts through constant phone calls or threatening lawsuits and garnishments. Bankruptcy protects a debtor from creditors and can eliminate debts or decrease the amount he must pay his creditors.

What is Foreclosure?

Obtaining a mortgage means making monthly home loan payments to pay off the debt. Mortgage terms vary; but on average, debtors have 30 years to pay off the loan. Throughout the course of the mortgage term, situations can change where a borrower loses his income and stops making his payment. Lenders are usually tolerant in the beginning, but they will foreclosure (take back the property) if borrowers can't maintain house payments.

Consequences

The repercussions of a bankruptcy and foreclosure are significant, and both can gravely lower credit scores and stop credit approvals. A bankruptcy remains on credit reports for up to 10 years, whereas a foreclosure remains on reports for seven years. Actual credit damage from both varies. But according to the Consumer Credit Counseling Services, a bankruptcy can reduce scores by more than 100 points. AOL Real Estates states that a foreclosure can reduce scores by 200 to 300 points.

Recovery

Recovering and regaining points after a bankruptcy and foreclosure depend on how well you manage your credit history. Good credit habits help in both situations. Even with a significant drop in points, you can little by little add points to your FICO score. Timeliness with regards to other credit accounts is key to recovery. If you have credit cards or loans in your name after a bankruptcy or foreclosure, always pay these accounts to avoid additional damage on your report. Creditors will frequently update your credit report, and the less negative information reported, the better your score. Keeping debts low also helps boost your score after bankruptcy and foreclosure. Make the necessary credit improvements and you can qualify for a mortgage two years after bankruptcy and three years after foreclosure.

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How to Buy a TV on Credit

If your credit is good, buying a new TV on credit is simple, but if your credit score is lower, not so much. Even if you don't have phenomenal credit, though, several options exist that will allow you to buy now, pay later.

Good Credit

If your credit score is high and you have a credit card, you can simply buy a TV with your credit card and pay off your monthly credit card bill as you would normally.

Rent to Own

If your credit score is lower and a regular credit card purchase is not an option, one of the first things to try is a rent-to-own store, such as Rent-A-Center. You will probably need to provide proof of employment and your address, as well as references, but there will be no credit check required to rent and eventually own a TV.

Payment Plans

Another option if you have bad credit is a retailer that offers layaway or payment installment plans for pricier items. Both processes involve you paying off a purchase in set payments at set intervals, including a larger down payment in the case of layaway. K Mart is one major retailer that still sells items on layaway.

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When I Marry Do I Assume Her School Loans?

Married couples share not only their assets but their debts as well. Thus, if your fiance carries a considerable amount of student loan debt, its natural to have concerns about your ability to pay off those debts as a couple. Marriage, however, does not automatically make you legally liable for your fiance's outstanding student loan debt.

Legal Responsibility

Regardless of whether your fiance continues to make payments on the debt after you marry or whether you pay the debts off as a couple, legal responsibility for paying the loans lies with your fiance, not you. The lender can only pursue the individual named as the responsible party on the loan documents. Because you were not a party to the loan, the lender cannot pursue you for payment. After marriage, your status as a spouse does not alter your liability for the loan. Even if your fiance were to incur student loan debt after your marriage, provided she did so in her own name and you did not live in a community property state, she would be the only party responsible for payment.

Community Property States

All community property states differ when it comes to debt liability laws. In general, any assets either you or your spouse accrue over the course of your marriage belong to both of you equally. Using this statute, some creditors argue that debts should also be the equal responsibility of both parties and pursue the debt accordingly.

Community property laws, however, only applies to debts and assets incurred during the course of the marriage. Thus, upon your marriage, you do not assume liability for repaying your fiance's previously accrued student loan debt even if you live in a community property state.

Refinancing

If your fiance chooses to refinance and consolidate her outstanding student loans, yet does not have the necessary income or credit rating to do so, acting as a co-signer can help her qualify but leaves you liable for the payments. As a co-signer, you agree to pay off the student loan debt your fiance owes in the event that she stops sending payments. This makes you automatically liable for the full remaining debt. Should you act as a co-signer, you are immediately responsible for the loan balance, whether you eventually marry your fianc or not.

Financial Concerns

Although a lender cannot hold you legally responsible for repaying your fianc's student loans after you marry, your fiance's failure to make the payments affects both of you. Should the lender sue her after you marry and pursue a wage or bank account garnishment, your household income will suffer. Unpaid creditors also reserve the right to place liens on property you share, such as a home or vehicle. Thus, while you do not assume legal responsibility for your fiance's student loans after marriage, not paying them has an adverse impact on both of your lives.

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Debt Settlement Effect on Credit

A debt settlement is an agreement in which a debtor and a creditor establish new terms for the repayment of an unpaid debt. Your credit score will be affected when you agree to a debt settlement, and it may affect your ability to obtain new forms of credit.

Settlement

When you negotiate a debt settlement, you and your creditor come to an agreement regarding how you will repay the debt. For example, your lender might agree to accept a $5,000 lump-sum payment to settle a $7,000 credit card debt. The creditor has agreed to accept less money than you actually owe, typically because the creditor concludes you cannot pay the entire balance and wants to get as much money as possible. Other creditors will be able to view this agreement on your credit report and may be less likely to offer you credit or favorable terms as a result.

Impact

Your credit score is based on your history as a credit user. It is based on factors such as whether you pay debts on time, how much debt you have and the length of your credit history. When you settle a debt for a lesser amount, the settlement gets recorded on your credit report. A settlement shows that you could not make your payments and had to terminate the account, both of which lower your score.

Scores

While the precise impact any debt settlement has on your credit score varies depending on the lender, the company calculating the score and other factors on your report, a debt settlement is a significant negative item and can lower your score substantially. Yahoo finance reports that a debt settlement lowers your score by 45 to 125 points. The impact is greater for those with a higher score than for those with lower scores.

Warnings

If you are considering debt settlement, you should evaluate your options before committing to a plan. Also, you should be wary of companies or people offering debt settlement services. These companies sometimes charge you for services you can perform yourself, and they can leave you in a worse financial shape than you were before. You can negotiate your own debt settlement. If you choose to use a settlement service, you should research the company carefully before entering into any agreement. You may want to consult the Better Business Bureau.

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The Best Way to Cut Your Debt

There is nothing worse than the feeling of being buried under a mountain of debt. Sometimes we come by this debt because of bad spending habits and other times we have it due to circumstances beyond our control. Whatever the reason, the main issue is how to get rid of it. Carrying debt becomes a big problem if you are paying so much to the debt that you are not saving at all for the future, according to MSN Money. Once you learn some strategies, you will be able to cut your debt.

Gauge Your Debt

Gauge whether you are carrying too much debt. According to MSN Money, as of 2010, the average household is carrying $8,000 in credit card debt, and some people routinely carry $15,000 to $20,000. Use a debt calculator to figure out how long it will take you to pay down your debt using the minimum payment and varying higher payments. Bankrate.com provides a debt calculator that is a real eye-opener.

Taking the $8,000 balance as an example, if your interest rate is 18 percent, compounded at 2.5 percent, and you make the minimum payment each month of $200, it will take you 360 months to get rid of your debt, assuming you stop using the card. The interest you will have paid during that time will be $11,615.32. However, if you doubled what you pay each month to $400, you would pay off your debt in 24 months, which would cost you $1,582.61 in interest. This is quite a difference, and it is all due to compounding. The longer you carry a debt, the longer that interest compounds upon itself. It's like quicksand, according to MSN Money.

Ways to Cut Your Debt

In order to cut your debt, you must change your lifestyle. There are seven effective ways to do this, according to MSN Money. Reducing your housing cost by moving or getting a roommate is one way. You can get rid of a car and look to other ways to commute, including ride shares. Take on a part-time job. By putting all you earn toward the debt, you won't have to keep the extra job forever, only until the debt is paid. Cut down on nonessentials, such as cigarettes and buying expensive coffee every morning. Live more moderately by downsizing your lifestyle, including cutting back or eliminating vacations. You may need to take your child out of private school and consider public school or home schooling. Tap any assets you may have. If you have stock you can sell, even at a loss, for example, that you can use to pay off your debt, do it. Avoid tapping into your 401(k), though, because you will need that money for retirement.

If Nothing Works

Financial adviser Sharon Rich, in the MSN Money article, suggests you have a 5-year cutoff plan. If you cannot pay the debt in 5 years, consider other options, such as debt negotiation or bankruptcy. Little spending cuts will not be enough to rid yourself of debt that will take longer than 5 years to pay off.

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Am I Liable for My Husband's Debt After His Death in Maryland?

When your husband dies, he may leave his assets and property to you. However, you may wonder if you will inherit his debts as well. In Maryland, though creditors may ask you to make payments, they can't typically take legal action to collect your deceased husband's debt from you.

Claims Against the Estate

If your husband dies with unpaid debts, the administrator or executor of his estate must pay creditors before he can distribute any property to you or your husband's other heirs. If the administrator or executor runs out of liquid assets, he must sell the property in the estate to pay the remaining debt. If he sells all of the property in the estate and isn't able to pay all debts, the court considers the estate insolvent.

Community Property

Some states consider debts incurred during a marriage to be the property of both parties. In such states, a surviving spouse takes legal responsibility for her deceased husband's unpaid debts. If the deceased husband's estate is insolvent, creditors can seize the surviving spouse's assets and property. However, Maryland is not a community property state. If your husband dies in Maryland, creditors can't take legal action against you for debts that were in only his name.

Co-Signing

Though you aren't responsible for debt your husband incurred in his name only, the law is different if you co-signed for the debt. If you co-signed, you and your husband are equally responsible for the repayments. If you and your husband default on the debt before he dies, Maryland will allow creditors to file a claim against your husband's estate. If your husband dies and you default on the debt later, Maryland will allow creditors to take legal action to collect the debt from you.

Jointly Owned Property

In Maryland, property that you and your deceased husband owned jointly, and with the right of survivorship, passes to you without going through probate. Because the right of survivorship gives you full ownership of the property, no portion of it is part of your husband's estate. The executor can't sell it or transfer it to creditors, and creditors can't obtain a judgment to seize it.

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