A spouse’s death creates a difficult and demanding time for the surviving partner. As much as you might want space and time alone to process your grief, you may have certain responsibilities related to settling your deceased spouse’s affairs, including paying off their debt.
The obligation to pay debts does not necessarily go away when a person dies. While most debts are paid by the deceased’s estate and do not transfer to a surviving spouse or other beneficiaries, in some cases you may be responsible for paying off your deceased spouse’s creditor claims.
It is important to understand your rights and obligations. You should be clear on what the laws are where you live. If debt collectors contact you, you have rights as well. You should discuss questions about your debt payment obligations and rights with an attorney who specializes in estate planning and administration.
Recent studies show that about 80 percent of Americans have some type of debt, from credit-card debt and student loans to mortgage debt and personal loans. An estimated 13 percent of Americans with debt expect that they will never pay it off during their lifetime.
The average American has more than $90,000 in debt. More than half of this amount is mortgage debt. While on average younger people have more debt, those age seventy-five and over owe an average of more than $40,000.
Even as people near the end of life, they can struggle financially. And when a debtor passes away, questions arise for their surviving loved ones.
Probate and Debt Payment
Probate is the legal process for distributing a person’s property after they die. During probate, estate assets are distributed according to the person’s will, if they had one, or to their heirs as determined by state law. But first, debts are paid. The remaining assets are then passed on to heirs or beneficiaries.
Some assets are not subject to probate, such as life insurance policies and other accounts with a named beneficiary, assets in trust, and jointly owned property. Each state has laws showing the priority for which debts are to be paid if there are not sufficient assets to pay all debt remaining. Typically, state laws first prioritize payment of administration costs, such as court fees and attorney fees, and funeral expenses, followed by taxes and then other forms of debt, such as loans and credit card balances.
When You May Be Liable for a Spouse’s Debts
If an estate is insolvent and does not have enough to pay off all liabilities, there may be nothing a creditor can legally do to collect a debt, and the debt could just go unpaid. But, in some situations, you may be on the hook for your deceased spouse’s debts:
- You cosigned for a loan.
- You are a joint account holder on a credit card (not merely a spouse who is an authorized user).
- You live in a community property state that considers a couple’s assets and debts to be jointly owned by both spouses.
Spousal Debts and Dealing with Debt Collectors
Unless you live in a community property state or are otherwise legally obligated to pay your deceased spouse’s debts, you should not have to worry about spousal debt. But debt collectors may contact you anyway.
Creditors could attempt to collect the money they are owed from assets that pass to you outside probate. They might even try to sue you personally to collect the debt. Neither of these tactics will work, but simply ignoring a legal filing is a bad idea. You may need to hire an attorney to prove that you are not liable for your spouse’s debt.
Debt collectors do have the right to contact a deceased person’s spouse to find out who is authorized to pay the estate’s debts, according to the Consumer Financial Protection Bureau. However, they cannot represent that you are personally responsible for paying the debt unless you are legally obligated to do so.
There are rules to debt collection under federal law. As a debtor’s surviving spouse, you have the right to tell a debt collector to stop contacting you. After you have made such a request in writing, they must end communications with you. However, they can still try to collect the debt from either you or the estate with an official filing.
Any debt that you do not personally owe should not affect your credit score, but a debt collector could improperly report your spouse’s debts to a credit reporting agency under your name. If that happens, contact the credit reporting company and file a dispute to get the erroneous information removed from your credit report.
Talk to an Estate Administration Attorney about Dealing with Spousal Debt
After the loss of a spouse, the grieving process can be complicated by the probate process and lingering questions about debt and finances. While you may not have to pay your spouse’s debt, you may have to serve as their personal representative or trustee and deal with creditors. To best honor your spouse’s legacy and protect your own rights, it helps to understand the laws around estate administration, unpaid bills, and creditors.
We are here to help. Contact us to set up an appointment. We can help you understand your rights and obligations and guide you through the process of administering your loved one’s estate.