Can You Inherit Debt?

Oct 7, 2013 by

last will & testamentYour Dad, a widower for the past decade, passed away a few weeks ago. You’re sorting through his belongings and getting up to speed on his affairs, and you learn Dad had $25,000 in outstanding credit card debt spread over several accounts. Your blood pressure abruptly jumps as you wonder: Is this $25,000 now my debt?!?

You Cannot Inherit Debt

Strictly speaking, you cannot inherit debt, assuming you’re not a co-signer. Your deceased parent’s debts cannot make their way onto your credit report. And, if the debt is or becomes overdue, no debt collector can attempt to force you to pay the debt through a lawsuit. (That’s not to say a debt collector won’t try to convince you that you’re obliged to pay—they just might! You can’t assume anything when it comes to this particularly vile species of vermin. That’s why you need to know your rights under the Fair Debt Collection Practices Act.)

But You May Feel Like You’re Paying the Debt

Dad’s death doesn’t mean, however, that his creditors are out of luck. If it did, creditors would be asking applicants health-related questions and cutting off debtors who reach a certain age or take up dangerous occupations like soldiering, coal mining, or blogging (just checking if you’re paying attention :-)). Creditors are entitled to be repaid from a deceased person’s estate. And creditors are “in line” for the estate’s assets ahead of lowly heirs like sons and daughters.

If you were Dad’s only heir, then the $25,000 in credit card debt will reduce your inheritance by $25,000. This may feel like you’re paying the debt. But remember: if Dad hadn’t run up the $25,000 in credit card debt and paid cash for all that stuff he put on the card, you’d be inheriting $25,000 less cash anyway. And you’d be sorting through the $25,000 worth of junk that Dad charged on the card.

What You Should Know About a Deceased Person’s Debt

Many of us are likely to be in the situation of working through a deceased parent’s financial affairs. With respect to debts, keep in mind:

 

  • Creditors seeking to collect a deceased individual’s debt must contact the executor or the party in charge of the estate.
  • Credit card issuers are supposed to inform promptly an estate’s executor about any debts outstanding. Also, penalties and interest should not be assessed during estate settlement.
  • If a debt collector contacts you about a deceased individual’s debt, SAY NOTHING, meaning hang up immediately. Anything you say may come back to haunt you. Remember: the collector’s not calling to express condolences. He or she has a plan to try and collect the debt, and you’re part of that plan. Your best strategy is to refuse any and all engagement with a collector in these circumstances.
  • If there’s not enough cash and assets (which can be sold off to repay debt) in the estate to repay a deceased’s outstanding debt, then you’d inherit nothing and creditors would write off the amount that can’t be covered by the estate.
  • When a loved one dies, it’s a good idea to cut up any credit cards in the deceased’s name and return them to the issuers along with a certificate of death copy. Also, ask the three credit reporting bureaus to close their reports on the deceased.
  • Check whether the deceased had insurance designed to cover any outstanding debt upon death. I’d never recommend buying such insurance, but you should surely take advantage if it’s in effect.

Have You Dealt With a Deceased’s Debts?

I’ve not been in the circumstance of having to deal with a deceased loved one’s debts. Have you? Did you encounter any surprises? Any lessons learned you’d like to share?

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  • Jay@MoneyBulldog

    Well, it’s kind of half and half. It’s better than nothing at all. Good post!

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