What to Do When Debts Survive Death

​Death. Debt. What do heirs have to repay? If a credit card, the agreement was repayment of what you borrowed — alive or dead. The obligation, though, doesn't extend to your family, friends or, in most cases, even your spouse.

If you are an heir, you inherit the worldly possessions but not the credit card balances of the deceased — you don't have to pay them. Exception? If someone was jointly liable for the debt with the deceased. In general, joint account holders are fully responsible for the entire debt, even if only one account holder made all the charges.

Still, creditors being creditors, you can expect they'll try to collect. And even though they usually cannot go after individuals, they can go after the estate.

But as a rule of thumb, heirs or family typically aren't responsible for your debts when you die. However, the debts don't just go away. The obligations transfer from the deceased to the estate.

The Estate Survives the Individual
Someone dies, and an estate is born. That estate has someone — termed either an executor or administrator — who is designated by the will and affirmed by a court to handle all financial issues of the deceased, including his or her debt.

So — here's the fun part — if you're not in charge of the estate and you get a debt collection request, you can direct callers to the executor, letting them know that you don't expect to be contacted about that debt again. If you are an executor, you manage the settling of all debts.

Only after the estate has settled its debts should the assets be distributed. The executor should work with the creditors if the estate is having trouble paying the bills — you may be able to work something out.

All this may go out the window if you live in a community property state. One spouse can be liable for the debts of another, even if the surviving spouse didn't agree to them or even know about them. In a community property state, you may be on the hook for the debt of a deceased spouse.

Sometimes the estate has more debts than assets to cover them. If no one else can be found to be responsible for the debt, creditors will be forced to write it off.

This can get complicated, however, and heirs and executors, who may be unsure of the status of a particular debt, should contact a qualified attorney for assistance.

Look at the whole picture this way: As executor or administrator, you need to use estate assets to pay the legitimate debts of the deceased person and of the estate.

So, who pays before the court officially appoints an executor or if there won't be a formal probate proceeding? When the bills start rolling in, some will need to be paid quickly, without waiting for the executor to open an estate bank account and start writing checks. In most situations, the people who inherit the estate should go ahead and pay the ongoing bills: utility, mortgage, house or car insurance, car payments and real estate taxes.

If these bills are not paid, valuable property could be lost or damaged. If you pay bills with your own money, keep careful records of all expenses. The executor can provide reimbursement from estate assets.

Creditors may submit both formal and informal claims — informal claims are ordinary bills. The executor has authority to use estate assets to pay these debts as they come in. Usually, the executor consolidates the deceased person's liquid assets in an estate checking account.

If the estate goes through probate, the executor must publish notice of the proceeding in a local newspaper, and creditors have a certain amount of time to submit formal claims. Most states give creditors about four to six months. If they don't submit a claim by the deadline, most creditors are out of luck. However, the federal government isn't bound by a time limit. And if the executor refuses to pay a formal claim, the creditor can appeal the decision.

​The executor has a legal duty to be fair to all beneficiaries. If you are the executor, you'll need to work out a system, with advice from a lawyer, to protect everyone's interests as best you can.