How to Settle the Estate of a Deceased Person With Debt
An executor, also called the personal representative, is the person responsible for paying the debts and identifying assets of the deceased. The executor is commonly named in the deceased person’s will, but may also be appointed by the state if a person dies without a will. A deceased person’s debts become the property of the estate if a person dies without a will. The executor must settle the estate of the deceased person in accordance with the probate laws of the state. The decedent's debts must be settled before any assets can be distributed to the beneficiaries.
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Instructions
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Identify the assets of the deceased, including real property, personal property, cash and investment accounts. If the decedent owned property jointly or owned bank accounts jointly, then the estate owns the portion of the assets that belonged to the deceased.
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Send a letter to the known creditors of the deceased to advise them of the death and of any state laws regarding submission of the debts to the estate for payment. State laws vary in this regard, but most require that creditors submit debts within a specific period for the debts to be considered legitimate.
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Place a notice in the newspaper with a wide circulation advising creditors to present debts to the estate of the deceased person, in accordance with the state’s probate laws. State probate laws vary regarding the length of time to run the newspaper notification and the information necessary to be placed in the notice.
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Identify any additional parties who may have a responsibility to pay a portion of the legitimate estate debts. For example, if the mortgage on the deceased person’s home is jointly owned, then the estate only owes the portion of the debt relating to the percentage of ownership. If the state is a community property state, then the deceased person’s spouse may have a responsibility to pay part of the debt.
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Pay the debts in order of importance according to state probate laws. Typically, debts that are first in line include taxes, funeral expenses and estate administration expenses. Debts that are secured by a mortgage, vehicle or other real property may be in default at the time of death. If the deceased person’s estate does not have sufficient funds to pay off the debts, the property may be sold or relinquished to the creditor. If there are insufficient funds to pay credit cards, utilities or other general debts, the debts may go unpaid.
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Send a letter to creditors if the estate does not have sufficient funds to cover the debts.
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