Debts and Creditors
A 2024 survey found that almost half of American adults expect to leave debt to their loved ones when they die. If one of your family members died recently, you might already be learning about the debts and creditors that so often come along with the probate process.
So, what should you do when creditors start filing claims against your loved one’s estate and try to convince a probate court to force you to sell their assets to pay off debts? Discover more about the rights you’ll have regarding debts and creditors below.
What Is Debt?
Debt is any money your loved one owed at the time of their death. In recent years, reports have revealed the average American dies with over $60,000 worth of debt.
The largest debt that most people have is mortgage debt. However, many other forms of debt also exist, including:
- Credit card debt
- Student loan debt
- Car loan debt
- Personal loan debt
Under one-fourth of American households have no debt, according to the Federal Reserve. So, if your loved one died with debt and creditors trying to track them down to pay it, you shouldn’t be too surprised. You’ll need to prepare to deal with this debt accordingly.
Which Creditors Might You Hear From Following a Loved One’s Death?
You may hear from any number of creditors about debts your loved one owed following their death. Here are several possible creditors you should have on your radar:
- Credit card companies
- Medical providers
- Banks and other financial institutions
- Student loan lenders
- Tax collectors
Depending on how much debt a loved one had, you might even receive mail, phone calls, and emails from funeral homes and cemeteries. It isn’t uncommon for debt to follow people right up until the very end.
What Is the Difference Between Formal and Informal Creditor Claims?
There is a good chance you’ll start to hear from some of your loved one’s creditors about their debt shortly after their death, especially if you’re the executor of their will. They might make formal and/or informal creditor claims. Here’s what sets these two types of creditor claims apart:
- Formal creditor claims: Claims filed against your loved one’s estate during the probate process
- Informal creditor claims: Payment requests sent to the executor for a loved one’s estate in the form of bills and other mail correspondences
You should take both types of creditor claims seriously, but it’s formal creditor claims that your family will really need to worry about. Debts and creditors who put in formal claims can begin to eat away at your loved one’s estate.
Do You Need To Pay Off a Loved One’s Debts After Their Death?
When creditors start making formal and informal claims against your loved one’s estate, it can put you in a scary position. You might wonder whether or not you need to handle debt and creditors on your own.
Fortunately, you shouldn’t have to spend a single penny of your own money paying off a loved one’s debts. Creditors can only come after you if you co-signed for a loan a loved one took out prior to their death or if you had a joint credit card account.
That said, the debts your loved one owed to creditors won’t just disappear when they die. If your loved one left behind any cash and/or assets, they’ll need to be used to pay off debts before you can distribute them to heirs.
You might also find that your loved one’s estate will turn into what is called an insolvent estate. This type of estate isn’t worth enough to pay off all the debts a person left behind when they died. In this case, your state may require you to participate in an insolvency proceeding to avoid further legal action from creditors.
How Can You Pay Creditors To Eliminate Your Loved One’s Debts?
If your loved one left behind debts, you can attempt to pay creditors to eliminate them in a few different ways. The easiest way to pay off a loved one’s debts is to take any cash they left in their will and use it to cover their debts.
However, this is just one way to pay off a loved one’s debts. You can also liquidate some or even all of their other assets to earn enough cash to pay down debts and creditors.
Contact Us To Stop Debt and Creditors From Impacting Your Life
As you move through the probate process, you may find it’ll affect your financial situation more than expected. If you’re the executor of someone’s estate, it can take up much of your time without giving much back.
Don’t allow debts and creditors to impact your life. If you’re in a financial bind, consider securing a probate cash advance from Rockpoint Probate Funding. Call us at (888) 263-8588 to hear more about how to qualify for one.
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