Stay Current on Collections and Debt Recovery Issues with CSC News

Debt After Death: Who Pays?

9/15/2021

Death is a fact of life that most of us choose not to think about very often.

But what happens to the debts of the deceased individual? Do they die along with him?

Getting Paid After a Debtor Dies

Death is a fact of life that most of us choose not to think about very often. But what happens to the debts of the deceased individual? Do they die along with him? As a healthcare provider or other creditor, is there anything you can do to get paid?

Upon death, an individual’s debts become the responsibility of his estate’s executor (that is, the personal appointed to carry out the terms of the will). The executor is charged with using the deceased person’s assets to pay off both his debts and current bills. This is the process of probating an estate.

Sometimes probating is as quick and easy as issuing checks from a bank account. At other times, it can involve the slow and complicated procedure of selling a home or other property in order to obtain the necessary funds. The complexity depends in part on whether the estate is “solvent” or “insolvent.”

Solvent Estate

When the decedent’s estate is solvent, there are enough assets available to pay off all debts following his death. That is, the total value of everything the deceased person owned exceeds the total of everything he owed.

While most of a decedent’s solvent estate must be probated, there are certain assets that are excluded from this process, such as:

Property that is jointly owned with someone else,
Retirement accounts with designated beneficiaries,
Life insurance with designated beneficiaries, and
Trusts

The executor would have no control over these assets; they are protected.

Insolvent Estate

If there are not enough assets in the decedent’s estate to pay off his debts, the estate is considered insolvent. (The total of everything owed exceeds the total value of everything owned.)

Community Property

Nine U.S. states are community property states, in which all assets purchased or earned during a marriage are deemed to be the property of both spouses (with the exception of gifts and inheritances). In addition, all debts incurred during the marriage are considered to be joint debts.

Community property does not go through probate and therefore is not subject to the will or to creditors. It can only be transferred to the surviving spouse.

For specific information about each community property state, click here

Source: EZ-Probate

In that case, the executor must prioritize the deceased person’s debts in accordance with federal and state law. Every state has its own probate laws that direct how someone's final affairs are to be handled. This includes the priority of debt payment.

In Colorado (CSC’s home state), probate laws prioritize payment distribution as follows:

Family allowances during administration of the estate (one year maximum in Colorado), or otherwise approved by the probate court
Administrative expenses
Funeral costs
Federal debts, including taxes
Medicaid reimbursement
Medical expenses related to last illness
State debts, including taxes
Current bills
Specific gifts stated in a will
All other claims

Although medical debt takes precedence over several other claims, in most states, this debt must pertain to the “decedent’s last illness.” The executor must pay priority debts first; other creditors are then allocated a share of any remaining funds.

--Article Continues Below--

Source: Total Bankruptcy

Filing a Claim Against an Estate

The executor is responsible for notifying all creditors of the consumer’s death. Typically, executors also notify the big three credit bureaus (Experian, TransUnion and Equifax), so the account can be flagged as “Deceased: Do not issue credit.”

After receiving notice, creditors must file a claim against the estate in order to be included in the distribution of assets. The statute of limitations for filing such a claim varies by state. Here’s the standard procedure for filing a claim:

Locate the correct probate court. The executor can file for probate in the county where the deceased person lived or in the county where the deceased owned property.

Gather documentation to confirm the debt AND to prove that the debt was still owed at the time of death.

Complete the claim form. Some courts require that claims be completed and filed in person; others allow this to be done online.

File the claim. Depending on the court, this may be done in person, online or by mail. Once filed, be sure to obtain a certified copy of the filing for your records.

Or Let Us Do It For You

If you’re already a CSC client, we’ll gladly file the claim on your behalf.

Not a client? Contact us to take advantage of this and the many other debt recovery services we can offer.

Filial Responsibility

More than half of U.S. states have what are known as “filial responsibility” laws. (Although CSC’s home state of Colorado does not.) These regulations require adult children to provide financial support for elderly and impoverished parents.

In some situations, a health care provider may seek to collect unpaid bills from the children after the parent dies. Typically, these debts are limited to nursing home and other bills for long-term care.