It can be traumatic and confusing to deal with the obligations of your loved one’s estate when they have recently passed. One of the most prevalent questions that arises at such times is whether they have debts, how those debts will impact their estate and the inheritance of that estate, and if that individual’s loved ones will be responsible for their debts.
Accordingly, we wanted to address these common questions:
Do creditors or taxes have to be paid before you can inherit your estate’s assets?
The simple answer is “yes”. Taxes always have to be paid, and they will be paid first, before any other creditors can get paid.
Any debts that are secured using property, such as mortgages, are considered secured debts in-part, because if someone does not pay the loan, the lender can take the property. This means that if you inherit a house, you also inherit the mortgage.
With that said, unsecured loans and debts, such as credit cards are very different, however it is still important to ensure that the debts get paid prior to distribution so that creditors do not come back to try and claw back estate assets or force a sale in order to satisfy debts owed.
What happens to credit card debt when you die?
There is good news and bad news when it comes to credit card debt. The bad news is that credit card debt does not automatically go away when the debtor passes away. It still needs to be paid by the estate.
Essentially, the credit card debt must be paid out of any remaining estate assets before any heirs can inherit those assets. If there are not enough assets to cover the total of the debt, then the estate, and the estate’s debt, cancel one another out (for all practical purposes).
The good news is that credit card debt is not inherited. In fact, it is against the Fair Debt Collection Practices Act (FDCPA) for creditors to call relatives of the deceased and use abusive, unfair, or deceptive practices to retrieve debts on behalf of the deceased.
There are exceptions however:
- In community property states a surviving spouse will be responsible for any and all unpaid credit card debts (fortunately neither Kansas or Missouri falls in this category).
- Any joint owner of credit cards that were also listed in the name of the deceased are still responsible for paying off the remaining balances if they exist in the account. Unfortunately, in jointly owned accounts, the debt is then transferred to the other person on the account.
Keep in mind that you do not have to speak to a debt collector unless you are the person in charge of the deceased’s estate. If you are not that person, refrain from providing your information, and just give them the information of that individual. If they continue to harass you, send them a letter through certified mail with a return receipt (and retain a copy for your records) telling them not to contact you again. After this is received, they may not contact you again.
For more information on how debt can impact an estate, contact the Hartmann Law team or give us a call at (816) 599-6638.