- A deceased person's debts do not disappear automatically.
- However, family members are not responsible for a decedent's debts either.
- The probate process will resolve creditors' claims.
My wife died with $17K in debt. Am I liable? Can the credit card company put a lien on my house for the debt?
We live in Alabama. My wife died with about $17,000 in credit card debt -- all in her name. She also has a car loan in her name only which she purchased credit insurance on. We own a home with some equity but not much. What could I expect from the credit card companies? Would they put a lien on our house? Could they force a sale? Would they come after a fairly new paid off car in her name? What could I expect if I don't assume her credit card debt?
My condolences on your loss. If you remember anything I am about to write, please let it be this: Do not believe legal advice from collection agents. The legal advice collection agents offer is usually incomplete or wrong, as is always self-serving.
Deceased Spouse’s Debt
Some people assume a decedent’s debt is forgiven or possibly written off by creditors. The law does not work that way, with the exception of federal student loans. However, spouses or other relatives are not responsible for the decedent’s debt automatically, either. Many collection agents take advantage of a debtor’s grief and ignorance of the law to imply the family must pay the decedent’s debt, but that may not be the case.
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. The process I just described is called probate, and a lawyer experienced in probate law can guide you through the process.
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. Again, a lawyer experienced in probate law can guide you through this process.
Here is a key point: If the estate is insolvent the creditor has no legal right to collect the debt from family members, children, or friends. In most states, the creditor cannot collect from the spouse either. However, in community property states, the question becomes more complicated.
|Community Property States|
Deceased Spouse’s Debt in Community Property States
Generally in community property states, debt incurred by a spouse for the benefit of the family is considered a “community” debt, and therefore the spouse is responsible for repaying that debt.
Does medical debt benefit the community? At first glance, no it does not. However, no two community property states use exactly the same laws. You may or may not have liability for your deceased spouse’s debt based on your state’s community property laws. But you cannot stop your analysis here regardless of which state you live in..
Doctrine of Necessaries
Many, but not all states have a “doctrine of necessaries” rule. The doctrine on necessaries rule requires spouses to pay for each other’s necessities of life. The doctrine also applies to parents of minor children.
If your state has a doctrine of necessaries rule for spousal debt, you may have liability for your spouse’s medical debt, even if you were completely unaware of the expense. See the Bills.com article Doctrine of Necessaries Rules For Each State to learn the rules for your state.
You mentioned Alabama. Alabama is not a community property state, so my discussion about community property law does not apply to you if you reside in Alabama.
Alabama repealed the doctrine of necessaries. Therefore, there is no statutory requirement you pay for your spouse’s necessary medical expenses if you did not sign a contract saying you would.
You did not mention whether your wife died with a will. I will assume she died intestate (without a valid will). In a process called probate, the administrator will review all of your wife’s assets and debts. You mentioned she had “credit insurance” on the vehicle, which I will infer means the balance of the car loan was paid when your wife passed away. The vehicle is an asset in her estate, unless your wife had your name on the title with hers. If your name is on the vehicle’s title, the vehicle became yours upon her passing.
For the sake of argument, let us assume her name was on the vehicle title alone. Let us also assume she had no other assets. And finally, let us assume the fair market value of the vehicle is $17,000. If that is the case, the administrator will sell the car, and pay the credit card company the balance owed, leaving you and her other heirs nothing. However, if the vehicle is worth more than the balance on the credit card account, then the remainder after paying off her debts will be distributed to your wife’s heirs. On the other hand, if your wife’s vehicle is worth less than $17,000, the administrator will sell it, give the proceeds of the sale to the creditor, and look elsewhere in your wife’s estate for the balance.
Spousal Debt and Real Estate
I am concerned about the title of your home. You used the phrase “We own a home...” This implies both of your names are on the title.
The exact language used in conjunction with the names on the title is extremely important. If the language on the title is “John Doe and Jane Doe, as joint tenants” or “John Doe and Jane Doe, as joint tenants with right of survivorship” then your spouse’s interest in the property passed to you at the moment of death automatically.
Similarly, if the phrasing of the title is something like, “John Doe and Jane Doe, with a tenancy by the entirety” then your spouse’s interest in the property passed to you at the moment of death automatically.
With either a joint tenancy or a tenancy in the entirety, because your spouse’s interest passed to you without going through the probate process, the house is not an asset of your spouse’s estate. That means that the creditor’s have no legal means of stating any claim against your house — there is no way for them to attach a lien to the house.
On the other hand, if the phrasing used on the title to the house is something like, “John Doe and Jane Doe as tenants in common,” then we have a more complicated situation.
Tenancy in Common
In a tenancy in common, each person on the title has an undivided interest in the property. Each person can dispose of their share of the property without it affecting the ownership rights of others. Unlike a joint tenancy or a tenancy in the entirety, upon death the decedent’s interest does not flow to the other owners instantly. Instead, the interest is considered an asset of the estate, and is distributed according to the decedent’s will or the state’s intestate distribution rules.
In this case, if the house was titled as a tenancy in common, you would retain your interest, then as spouse receive one-half of her interest. Her remaining interest would proceed through probate. If estate was debt-free, the remaining interest would be distributed to her other heirs, such as any children she may have had.
If the house was titled as a tenancy in common, and your spouse’s estate had outstanding debt, then it is within the administrator’s power to sell the interest to raise funds to satisfy the debt.
As you may have gathered, the rules regarding how a property may be titled are intricate (they are almost universally hated among law students, too, but I digress.) For that reason, I recommend you take the documents regarding your spouse’s vehicle loan, her recent credit card statement, the title to your property, and any other documents that you think may be important regarding her finances to an Alabama attorney experienced in property or probate law. He or she will review the entire situation and give you a more detailed and precise discussion of your rights and liabilities.
Do not assume you have liability for your deceased spouse’s debt. For additional general information on who is responsible for deceased person’s debts, 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. Both documents are excellent starting points for family members dealing with this issue. Second, to learn more specific information about your state’s probate rules, consult with a lawyer in your state experienced in probate law.
I hope this information helps you Find. Learn & Save.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q3 2023 was $17.291 trillion. Student loan debt was $1.599 trillion and credit card debt was $1.079 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Mississippi, 35% have any kind of debt in collections and the median debt in collections is $1598. Medical debt is common and 16% have that in collections. The median medical debt in collections is $719.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.