Three years ago Mia Wilson's parents died in Texas. Mia was surprised when she got a call from creditors. The creditors informed,that her parents left $60,000 in credit card debt. She got call from many credit card company to negotiate the payment. She was worried as the creditor had a legal claim on her property due to unpaid debt. Finally, she paid off the debt through a negotiation after 1 year. This is a common nightmare most children ever face after the death of their loving parents. Know the basic facts of inheriting debt through this article.
Laws regarding inheriting debts: A brief synopsis
Heirs are not bound to pay the deceased person's debts. The payments of a decedent's debts will go to creditors through the probate process in case, he/she accumulated the debt solely in his/her own name. If there is still more debts and no other property left . The creditor will be not paid at all. Moreover, the creditor has no right to file a lawsuit.
An exception: Remember, there is still an exception for co-signed and guaranteed debts. It will be your duty to pay due bills if you're a joint holder of your parent's credit card. . This rule is also applicable for a joint debt, mortgage, bank loan, car loan. In this case, the creditor has the right for law suit if you're a co signer and unable to pay the bills. This process is applicable for the guaranteed debt too (due medical bills).
Check out the 5 types of debt that a deceased person may leave for his/her heir.
- Taxes: Income taxes and the property taxes are paid through probate process. You are not responsible for paying those bills. IRS can file lawsuit and get paid when there is an unpaid federal estate tax and the property distribution is already over.
- Medical debt: If medicaid is applicable for your parents as per the state's (where they lived) rule, then the due medical bill will be paid from the state they left. The state may file a lawsuit on the house for payments. Incase, of no medicaid, the unpaid doctor's bill and medical bills will be paid through the process of the estate liquidation.
- Mortgage debt: Mortgage debt issue is quite complicated. But there are many options to handle the situation as it is a secured debt. As a beneficiary, you can take the home after paying off the loan. If the property holds huge funds, you can resume the mortgage and continue paying normally. Or you can sell the house and pay. Last option is refinance. Car loan is similar to mortgage.
- Student loans: Student loans are forgiven after the death of a deceased person.
- Credit card debt: Credit card debt is an unsecured debt. It is different from mortgage debt as it is a personal loan. You are not responsible for the visa bills. But if you are a joint debtor (a co - signer), your parent's debts are your duty. Pennsylvania attorney Linda A. Kerns said "Sometimes, people can be on a credit card and not even know it," "Maybe when they filled out the credit card applications, (the joint cardholder) didn't even tell them." So, it is your responsibility to check the credit reports regularly.
When you can inherit debt
You are legally responsible to pay your dead parent's debt when:
- You are co-signer for personal loan which is unsecured.
- You are a joint holder for a account.
- You are a widow and live in a "community property" state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).
Read more: When You Could Inherit a Deceased Parent's Debt
What to do when you face unethical collection tactics
Sometimes, as a beneficiary you may experience harassment (due to payment related issues) by collection agency. They often use many tactics to manipulate you. Sometimes, they deceive about the actual cost of loan. Moreover, they apply pressure by saying ,that paying debt of dead parents is your moral duty. Be very sure about the fact , that if you are not a co-signer, you are not responsible for any inherited debt. So, you should check the facts.
- If the debt is valid.
- If you liable for the debt.
- If the debt is validated in written.
What you should do if you care for the dead person's accounts
After your parents death, you should gather all the bills (credit card, medical issues) in absence of an executor. After that, you should inform the respective card companies about the death. You should send the death certificate to the organization mentioning all the details (name of the dead person's and card number). Do not forget to keep a copy of the letter as a proof of your work.
The credit card company may try to convince you to accept the account. If it happens, and you decide to pay off the debt to continue the account . The company will check your credit. You need to pass the credit check, with good credit score. Otherwise, you don't inherit the account with the facilities (high credit limit, low interest rate). Another option is to close the account if you don't want it.
Lastly, creditor makes claim against a deceased person's property between 2 to 6 months. Then, it is a duty of an executor to sell the property and pay off the bills. According to the certified financial planner, Mari Adam of Adam Financial Associates âyour parents' debt will die with them,".
It is true, that talking about a loving parent's death and handling the situation after their death are very difficult for children. But it is a responsibility of both parents and children to know all the issues related to the assets. Consult a professional if you want to know all facts to avoid future harassment. It is your duty to know your legal right. Just gifting assets is not enough. Be sure, that it will work for your loving children in your absence too. If you experience harassment as a heir, file complaint to FTC.