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The treatment of debts on the death of the debtor

Debt is increasingly a part of life, in New Jersey and across the U.S., and so it is increasingly a part of death too. When a person dies, his or her estate is obliged to pay liabilities, including taxes and debts, before making distributions to heirs. Debts typically do not die with the debtor, therefore, and they usually must be paid. On the other hand, debts normally will not pass to heirs. If the decedent has a will, it will usually name an executor to manage the estate, handling distributions to creditors and heirs. In the absence of a will, a probate court may appoint an administrator to step in and perform the actions of the executor.

If the estate’s assets are sufficient to cover the decedent’s liabilities, then the heirs will inherit the remainder. The executor or administrator of the estate may in some cases be able to settle the debts of the estate for less than the amount owed, leaving more assets for distribution. If the estate is insufficient, though, some debts may pass to heirs. In community property states, for example, a surviving spouse may still remain liable for those debts.

Generally, creditors are forced to write off debts after the debtor dies. Joint account holders and co-signers remain liable for debts to the extent that they were liable before the person died. An authorized user of a credit card will typically not be liable for the debt.

Creditors have the legal right to call once to determine who is administering the estate of the decedent. Repeated calls to collect debts, especially debts of another person, may constitute creditor harassment. A bankruptcy attorney may be able to help those who are struggling with credit card debt to understand the rights and obligations they have regarding repayment or to eliminate or reduce the amount outstanding.

Source: Motley Fool, “What Happens to Credit Card Debt When Someone Dies“, Peter Andrew, July 19, 2014

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