You may be liable if it is co-signed or joint debt, home equity loan or if it is debt in community property states.
Of course, the loss of a close relative is a blow not only for you but for our entire family. Most likely, you already have enough problems besides thinking about money, but this is an important issue to consider. Many people want to know can debt be inherited or not, and how a relative’s assets and debts can affect them.
First of all, you should know that most often a person’s debt is not inherited by his spouse or family members. Instead, however, a person’s property usually covers all of their outstanding debts. In other words, those assets that he owned at the time of his death will be used to cope with his debts.
However, the situation may change if the deceased person’s estate cannot cover his or her debts or if you jointly held the debt. It is in this case that inheriting debt is possible. It is important to understand that long inheritance law can vary from state to state. Keep reading for more details.
Do You Inherit Your Parents’ Debt?
Of course, after the death of their parents, many people want answers to questions such as “does my parents debt passed to me” or “what happens if your parents die with debt”, as this can directly affect their financial situation. Of course, debts do not disappear with themselves after the death of a person. As a rule, they are settled in a process that is called probate. Thus, the creditor has a certain period of time during the probate in order to file claims regarding what belongs to him. That is why, most often after death, the property of the deceased person will cover the payment of his existing debts.
Assets and property that was registered in the name of the deceased person will be considered part of his property. So if your parents died with a savings account and debts, then that money will be used to pay them off. That is why you must remember that if your parents have a debt, then you are far from the first to claim the inheritance, since all debts must be paid off first.
However, if you are the executor of your parents’ property, then you will need to inform all creditors of the person’s death and pay the debts (that are owed with assets). Also remember that you will need to provide creditors with certified copies of your parent’s death certificate. Moreover, you will also need to contact the three main credit bureaus (Experian, TransUnion and Equifax) in order to report your parent’s death. Thus, his credit reports will show that he has died, and new lines of credit in his name cannot be obtained.
However, what if your parents’ inheritance is not enough to pay off their existing debts? In this case, state law decides which debts are the highest priority. In other words, the answer to the question “will I inherit my parents debt” is no, unless you fall under the exceptions.
What Types of Debt Can Be Inherited?
So, even though personal debts are most often not the responsibility of relatives, you can still inherit some debts. So, if your loved one has died, but his property cannot cover all his existing debts, then you can be liable for them in the following cases:
- Co-signed or joint debt. Surely you understand that if you had a joint account with a deceased person, for example, a credit card, then after his death you will remain the owner of the account and will be responsible for paying debts. Also note that according to the Consumer Financial Protection Bureau, authorized users are most often not liable for credit card debt.
- Home equity loans (or inherited homes). You should note that if you inherited a house from a loved one when they died and they still had a home equity loan on the property, you still inherit that debt.
- Debt in community property states. There are some states whose laws state that you may be required to pay a portion of your deceased spouse’s debts out of common property. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
With other types of long, the situation may vary. For example, if your deceased relative had medical debt, then it will be covered by his assets. However, if the debt exceeds the available assets, most often creditors simply write off the debt, which means that no one will have to pay it back. But there may also be exceptions to this. For example, if you are co-signed on medical bills or live in a community property state, then medical debts may be passed on to you. It’s also important to note that some states have laws that require adult children to be financially responsible for their parents if they can’t do it on their own. But, more often than not, these laws do not apply to medical debt, as it is most often covered by Medicaid.
Can You Inherit Credit Card Debt?
Credit card debt will also depend on both the circumstance and where you live. If you and the deceased person had a joint credit card account or were the guarantor of a loan, you will most likely be liable for the remaining debt. However, if it was an individual account, you won’t have to pay anything (unless you live in a community property state). If you live in one of these states, most likely any debt that arose before the time of marriage will also be considered joint.
Remember that laws vary from state to state, so check the laws of where you live or contact an attorney to help you deal with your debt obligations.