A debt can survive a debtor. Even if the debtor dies, the creditor can still continue the collection activity against the deceased debtor’s assets.
When a person dies leaving behind a debt, an executor is appointed to deal with the estate. Generally if there is no will, then the living spouse is appointed the executor. If there is no living spouse and no will, then a close relative is appointed the executor. If there is no will and no living spouse or close relative, then the executor is appointed by the state. The probate law of the state will determine who is appointed the executor of a deceased’s estate and the process of distribution of the assets.
If the deceased debtor leaves behind a will, the executor must pay off the creditors before the estate is distributed amongst the heirs of the deceased debtor. In the absence of a will, the estate must go through the probate process before it can be distributed amongst the legal heirs. Probate process can be time consuming and costly.
Duty of Executor
It is the executor’s duty to pay off the debts from the estate before distribution of the estate to the heirs. The executor must submit an inventory of the estate’s assets to the probate court. If there is no estate, the executor must inform the creditors about the death of the debtor and that there is no estate for distribution. Even if there is no estate, the living spouse or close relatives can be held liable for the debt if they have co-signed the debt.
If there is an estate for distribution, then the executor must notify all creditors either by contacting them or by public notice. The exact rules vary by state. The creditors must submit their claim to the court where the probate is pending. The claims must be submitted before the probate process is completed.
When a creditor submits a claim to the probate court, the executor will review the claim and either accept or reject the claim. If the executor accepts the claim of the creditor, it will be paid from the estate’s assets. If the executor rejects the claim, the creditor must file a lawsuit against the estate to recover the debt.
All of the deceased’s debts are not treated equally. Some debts are afforded special priority by Federal and State laws. Generally Federal and State debts such as taxes are afforded priority and must be paid before the other creditors are paid. Federal debts must be paid first followed by State debts. Secured debt must be paid before the unsecured creditors are paid.
If the estate is worthless, then the debts are usually charged off. Once the creditors know that an estate is worthless, they generally stop all collection activity because they see it as a waste of money and time. However if there is a co-signer for the debt, the creditor will continue the collection activities against the co-signor.