Losing a loved one is an emotional time, but it also comes with certain things that have to be taken care of. One of the most common questions that families ask after they face the loss of a loved one is what’s going to happen to that person’s debt. Contrary to what some people assume, those debts don’t just disappear.
There are two primary ways that debts are handled when someone dies. One of these ways is that a joint account holder or cosigner will become responsible for those debts. The other is that the estate becomes responsible for those debts.
How does an estate handle debts?
Creditors can file claims against the estate through the estate administrator. Typically, debts that are considered valid must be settled before errors or beneficiaries receive any inheritance. It’s possible that some debts may remain unpaid if the estate is insolvent. All payments and debts that have to go through the estate must be taken care of in a specific order that’s set by law.
What if the debt was secured?
Secured debts, which include car loans and mortgages, are tied to the property. In some cases, joint account holders, cosigners or the decedent’s beneficiaries may opt to pay secured debts to retain the property. If the payments aren’t made, the creditors can seize the property through foreclosure or repossession.
Taking care of the estate’s debts is only one part of the estate administration process. Individuals who are handling this should ensure that they understand their duties and can do them in accordance with the law. Because these matters can become complex, it may be best to work with someone who can assist.