My wife's mother passed away. What bills of hers must we pay? The hospital bill? Utilities?
When a person passes away, the decedent's debts do not automatically pass to his spouse, children, or anyone else. Debts incurred by an individual are owed solely by that individual. If a person dies before his debt is paid off, then the creditor can attempt to collect the debt from the individual's estate, meaning that the debt would be paid before any money or other assets are passed to his heirs. However, if the person dies without sufficient assets to pay off the debt, then the debt is uncollectible and the creditor will likely write it off its books.
While a surviving relative is not liable to pay debts of the deceased out of his own assets, the probate court may require that any property belonging to the estate be paid to creditors before the heirs receive any inheritance.
Frequently, creditors will contact the surviving relatives of a recently deceased debtor to try to convince them to pay the debt owed by their late relative, despite the fact that the relatives are not liable. These collectors will often say things like, "Don't you think your father would want you to honor his memory by paying this debt" (I have actually heard that line before).
They often try to insinuate that a legal obligation to pay the debt exists, saying things like, "But you've been making the payments, so it looks like this is your debt." Sometimes, they even state outright that a relative is legally obligated to pay the debt, which in most cases is absolutely untrue. Under federal law, making untrue or misleading statements in an attempt to collect a debt is illegal.
When a person dies with a will, the will controls the financial affairs of the decedent's assets, which is called the "estate." A will distributes assets, not debts. However, before any assets can be distributed to the heirs, all known debts must be paid by the executor. Therefore, the executor will sell assets in the estate to pay for any debts that remain. Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will.
If a person dies without a will, this is known as "dying intestate" in lawyer-speak. In this situation, the court appoints an administrator to handle the distribution of the decedent's assets according to the laws of the state. As with dying with a will, assets are distributed after debts are paid.
Here is a key point that bears repeating: If the estate is insolvent the creditor has no legal right to collect the debt from family members, children, or friends. There is no feudal debt bondage that ensnares an entire family, at least not in the US.
You do not mention if your parent has a surviving spouse. In most states, the creditor cannot collect from a decedent's spouse. However, in community property states, the question becomes more complicated. See the Bills.com resource If a credit card company charged-off the debt on my deceased spouse's account, do need to report that as taxable income?
For additional general information, see the Federal Trade Commission documents Paying the Debts of a Deceased Relative: Who Is Responsible? and FTC Issues Final Policy Statement on Collecting Debts of the Deceased.
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