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Does a person’s debt go away when they die?
Many people are surprised to hear that a person’s debt does not simply go away upon his death. When someone passes away, his debts are typically owed by, and paid out of, his estate. In practice, this means that the executor or administrator is responsible for ascertaining all valid debts, and ensuring that they are paid from the assets or property left in the estate.
If my husband passed away, am I responsible for his debt?
Even if you are a surviving spouse, you typically are not personally liable for your deceased husband’s debts, unless you have a shared legal responsibility towards the balance. For example, if you are a co-signatory on a loan with outstanding debt, or if you are a joint account holder on a credit card, a debt collector may contact you and request that you pay the balance of the debt.
In community property states like California and Texas, surviving spouses are required to use jointly held property to pay the debts of a deceased spouse. However, in New York, a surviving spouse or beneficiary is not personally liable for any debt unless she agrees to assume it.
What if I was named executor? What are my responsibilities?
As executor, you have a responsibility to take inventory of your husband’s debt, evaluate their order of priority, and determine whether they should be paid in full or continue to accrue through the estate process. In most states, an executor is required to publish a notice to creditors to advise them of a potential claim, but in New York, the onus is on creditors to follow up on collecting debts. Creditors have a seven month period to file any claim against the estate; if a creditor fails to file a claim within that period, the estate is not responsible for the debt absent certain exceptions (i.e. Medicaid debt).
You may reimburse yourself for any out-of-pocket expenditures you make towards payment of debts from the estate’s residuary. In fact, such expenses of administration, including payments towards funeral homes and probate fees, are typically the first debts to be satisfied from the estate and have the highest level of priority.
What happens if an estate has more debt than assets?
If the amount of debt owed by the estate exceeds the value of the estate’s assets, New York state law has a chain of priority for creditors. After estate administration expenses and federal taxes, property taxes are next in line to be paid. Judgment creditors with court backing come next, followed by secured creditors (such as car loans, mortgage payments, or home equity). At the lowest level of priority are unsecured creditors, such as utility bills and credit card debts.
Need help handling estate debts? Consult an estates attorney
If the estate does not have funds to satisfy creditors, managing debts can be a frustrating process. An experienced estates attorney will give you the guidance you need to navigate a complex scenario and ensure that creditors are satisfied in the proper order of priority.
By Britt Burner, Esq. and Frank Oswald, Esq.
Britt Burner, Esq. is the Managing Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Elder Law. Frank Oswald, Esq. is an associate attorney at Burner Prudenti Law, P.C. focusing his practice areas on Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.
